IF you need to move funds from the UK to Australia, it probably hasn’t escaped your notice that the Sterling — Australian Dollar exchange rate is at the highest levels we have seen since 2010. I can hear you saying, ‘about time too’, and you would be right to wonder why it has taken so long, but we have still not seen the remarkable Australian Dollar strength fully unwind. Neither have we seen the Pound return to pre-crisis levels.
So there may be more to come but there are caveats.
The weakness in the Australian Dollar has only taken us 50% of the way back towards the 2009 high from the 2013 low. Technically speaking, that is a very significant pivot point and further gains in this exchange rate relay on the continued move away from the high yielding Aussie Dollar investments and into other markets; like US equities for example, which are setting regular new highs. It also relies on the UK economy continuing to deliver solid growth and improving business sentiment. The fickle and uncertain nature of this data means the upward movement of the Sterling — Aussie Dollar exchange rate is most definitely not certain yet.
The problem with that level of uncertainty is that, just when you want someone to say, ‘now is the time to convert your money’, you will get a more ambiguous response. The ambiguity is correct though because everyone has a different set of parameters, of circumstances and of appetite for risk and these factors will also affect how you decide to proceed.
Been waiting a long time and/or need to get some funds to Australia?
Well if this is the case, you are a very lucky person because your opportunity is knocking. 8 months ago, a £100,000 transfer to Australia would have yielded just A$144,000. At the current A$1.80 rate, you could be receiving A$180,000 and that makes you A$36,000 (a full 25%) better off through nothing more that fortuitous timing. Why wouldn’t you be happy to get some of your funds converted?
Not ready to convert your funds?
That isn’t a problem. You can still take advantage of these excellent rates by booking a forward contract. That will ensure you get the current exchange rate but can delay the settlement and delivery of the contract for up to two years. You will be asked to provide a deposit to secure the contract and that is usually a 10% part payment but that means 90% of your funds are free to remain in investments. It may also mean you don’t have to sell your property just yet at a time when property prices are still recovering.
Hoping the rate will get even better?
Well it might. As mentioned earlier, we will need to see a continuation of the flight from the Aussie Dollar and that could take some time because one of the significant factors there is the level of interest rates in other countries. Presently the base rate in Australia is a relatively attractive 2.5% whereas in America, Japan and Switzerland the base rate is virtually 0%, in the Eurozone it is 0.25% and the UK is still at 0.5%. So it is no surprise that investors are still happy to invest in Aussie bonds. The fact that those other base rates are likely to be static for another year or so is likely to maintain the Aussie advantage.
Another factor is the growth of the Chinese economy and that is still out-performing anything the West has to offer. China is important because it is Australia’s number one export market. So if China’s economy continues to grow, that does provide support for Australia.
If, in spite of those concerns, you would prefer to wait, then, if the Pound can break through the technically significant A$1.8250 — that’s the 50% retracement level I alluded to earlier — then there is plenty of scope for a rally to A$1.91. That may take some time, but if you have time on your hands and you are not entirely risk averse, that may well be an option for you.
Whatever your choice, it is worth talking over your options with a good foreign exchange specialist to see how you might make the most of these recent moves.
David Johnson, founding director of FX company, Halo Financial.
