Call: +44 (0)1491 577550

Email: enquiries@satworldwide.co.uk

Buying Australian Dollars

With the highest interest rates of all G20 countries 4.5%, Australia has been an attractive destination for investors for a couple of years now. For a number of years, higher interest rates led to the carry trade, when investors borrow a currency at a low interest rate and invest in a currency with a higher interest rate, which strengthened the Australian dollar.

As the global economic crisis unfolded, it was clear that some economies, namely the UK and US, were more exposed than other economies to the credit crunch. Demand for Australian raw materials from China reduced the impact of the global crisis on Australia and kept the Australian dollar robust.

Over the last couple of months, the Australian dollar has been under some pressure. In May 2010, the Australian dollar reached a 25-year low against Sterling at 1.6220 (down over AU$1 dollar from October 2008) however; in July Sterling recovered to trade above £/AUD 1.80. A high that coincided with two consecutive quarters of positive GDP growth as the UK economy exited recession.

As the major economies around the world return to growth, will the Australia dollar remain as strong? Or as the UK talks about inflation pressures and see continued GDP growth, will the Pound be able to get back to pre-credit crunch levels?

After the Reserve Bank of Australia paused from raising interest rates in May 2010 following six consecutive increases from 3.0% to 4.5%, there have been some concerns that the Australian economy will be effected by China’s determination to slow down their rapid economic growth to a more sustainable level. If this happens, demand for Australian raw materials will fall, affecting Australia’s biggest sector, mining. Exports will fall and, if China buys fewer raw materials, China won’t be buying as many Australian dollars.

The decision to hold interest rates at 4.5% in May and with inflation in Australia lower in July at 2.7% from  3.6% in June, it seems interest rates in Australia may remain on hold for some time. In addition, Australians go to the polls for their general election in what is expected to be a very close contest between the Labour and Liberal parties with a hung parliament a very real possibility.

It would appear that the signs point to a weakening of the Aussie dollar towards the end of 2010 but it is unlikely that Sterling will recover to pre-credit crunch levels by the end of the year – if ever.

If you need to buy Australian dollars, the one thing that is guaranteed is volatility. Movements in the exchange rate do present opportunities to buy Australian dollars at good levels but it does increase your risk. Using a market order to maximise favourable movements is one strategy available where you can specify a particular rate you wish to buy Australian dollars at; when the market hits that level your trade will automatically be completed. In conjunction to using an order, you can also place a stop which is your back-up so if the market doesn’t reach your order, you have protected your downside.

Buying Australian Dollars & Selling Pound Sterling

Since the sovereign debt issue in Greece surfaced and the rest of Europe, namely Spain, Portugal, Italy and more recently Hungary, suffered from the same problems, the currency markets have become noticeably more volatile.

The largest participants in the currency markets are banks, buying and selling currency for speculative gains and searching for the highest interest rate yield they can. Due to the size of these trades, often £50 million-£100 million per trade, markets are volatile as these trades have the biggest effect on the currency markets.

When the enormity of the Greek debt relative to Greek GDP and talk of a default on the Euro by the Greek government was published, bankers and investors became wary of which currencies to hold and ultimately bought US Dollars. This is because in times of uncertainty, the US Dollar, as the world’s reserve currency, is deemed a relative safe haven even though US interest rates are at record lows.

The net result was that the Australian Dollar weakened, going from £/AUD 1.66 to £/AUD 1.77 in a 24 hour period, as bankers and investors sold assets that provided high returns. The net result was a sale of Australian Dollars, which investors were holding in huge quantities as Australian interest rates are the highest, at 4.5%, of all G20 countries.

As concerns over contagion risk in Europe have reduced, it is noticeable how banker and investor confidence has returned to the markets, coinciding with US Dollar weakness and Australian Dollar strength. This week, improved investor confidence, and a rise in demand for commodities, gave a boost to the Australian Dollar as the rate plunged through £/AUD 1.70.

In the UK, whilst there is also a huge budget deficit, the new coalition Government’s strategy for reducing the deficit seems to have encouraged the markets as Sterling has been able to hang onto, just, to recent forex gains. It is fluctuations of investor confidence though that is having the biggest influence on the currency markets at the moment.

As if to illustrate the increased volatility, during April 2010, £/AUD traded between 1.6350 and 1.6760 – a range of only 4.1 cents (2.4%). In May though, £/AUD traded between 1.6220 and 1.7780 – range of over 15.5 cents (8.7%). This comparison highlights the volatility and, whilst increasing risk, can also present opportunities for migrants moving to Australia. If you had £100,000 to transfer to Australia, these movements could have gained you an extra AUD 15,000. The problem is, how do you know when to trade?

At SAT Worldwide, every customer has their own personal account manager who will watch the market on their behalf, monitoring market trends, reading data releases and informing you of markets movements in your favour. By acting as our customers “eyes and ears” you can relax, safe in the knowledge that an experience currency trader is watching the market for you.

For information contact us on +44 (0) 1491 577550.

Buying Euros | Selling Euros | Buying US Dollars | Selling US Dollars | Overseas Mortgage Payments
Foreign Currency Exchange Broker | Foreign Currency Dealers | Foreign Currency Exchange Transfers

Conceived with Ambition