Aussie Dollar update

[Guest HIFX plc]

Hi All,

As requested by a number of PiA regulars here's a brief update on what's happening in the currency markets and for anyone in the UK enjoy the snow!

 

High & Low of the Month:

High: 2.2301 (on the 15/01/09)

Low: 2.0202 (on the 05/01/09)

 

Difference of cost on a £200k:

High: $446,020

Low: $404,040

So a difference of $41,980

 

The Australian Dollar closed 2008 on a high against the Pound, gaining some 10% over the course of last year as an attractive yield advantage and relatively robust economy kept the AUD well supported. However, this summary hides a wild year which saw gains in the AUD down to 2.03 in mid-year, given up, and then some, back up to 2.70 by October as Australian assets (commodities and mining stocks in particular) were dumped in the autumn fire sale by hedge funds, following the Lehman’s collapse. There was also a further clearing out of stale ‘carry trades’ during this time. Even more remarkable, was the swift recovery in the AUD and, coupled with renewed weakness in Sterling, a slump in GBP/AUD back to 2.05.

 

The Reserve Bank of Australia’s recent bold moves, slashing interest rates by a hefty 3.00% since September to 4.25% have been well received and the AUD remains one of the few currencies with a relative yield advantage.

 

In broad terms, GBP/AUD remains confined within a multi-week downward range since the peak in October at 2.70, with scope readable towards the psychological 2.0000 level next.

 

GBP/AUD jumped to a fresh one-month high last week as bleak Australian economic data and further worries surrounding the global financial sector spurred investors to sell risky assets such as stocks and higher-yielding currencies. The Aussie’s demise was further compounded after Australian employment fell by less than expected in December, but a steep drop in full-time positions and a rise in the jobless rate heralded further weakness ahead, reinforcing the case for more interest rate cuts. The government report showed a net 1,200 jobs were lost over December, but firms cut full-time employment by a steep 43,900, the biggest drop in more than five years while the unemployment rate ticked up to 4.5% from 4.4% in November.

 

Although GBP/AUD has rallied impressively in recent weeks, Sterling is not yet out of the woods and although further commodity price falls would damage the Aussie Dollar, we expect resistance around 2.30 – 2.32 to restrict further advances. However, in the absence of a more extended period of consolidation, it is difficult to imagine any emergent Sterling strength being sustained much thereafter.

GBP/AUD slumped sharply at the end of the month, as UK banking shares dived and Britain’s latest bank rescue plan did little to assure investors and raised concerns about the government’s ability to service its ballooning debt. Meanwhile, on the data front Australia’s export prices soared by a record last quarter, helping outstrip the biggest rise in import costs in 22 years and delivering a last hurrah to trade incomes ahead of a likely severe downturn this year. The government showed the price of Australia’s export prices jumped 15.9%q/q in the fourth quarter, leaving prices 54.9% higher for the year and posting the biggest increase since the series began in 1974. Import prices rose 10.8% in the quarter, the largest rise since 1986, leaving them up 22.1%y/y.

We suggest, the initial Sterling rally at the start of January was not strong or sustained enough to confirm a change in the overwhelming sentiment against the Pound.

 

Central bank rates:

Australia: 4.25%

UK: (MPC): 1.50%

US (FED): 0.00 – 0.25%

Going forward most industry analysts expect continued volatility. No surprises there!

Whilst FX isn't the most thrilling of subjects, the sooner you begin to think about your money transfers, the more likely are to make your money go as far as you do.

 

Best Regards

 

HiFX