I’ve not done one of these for a while so please find below an update following UK Sterlings rises and falls against the Aussie Dollar in recent months.
Sterling’s sharp rebound in May took the currency up to $1.75. Since then there has been a fair amount of action, but no progress in either direction. The pound has spent the majority of its time in a horizontal channel between $1.70 and $1.80. It has tried to break out, first downwards then upwards, but seems now to have become accustomed to its new home.
Investors still appreciate the attractive return that the Australian dollar offers. The Reserve Bank of Australia’s Cash Rate (akin to base rates in Britain) has been set at 4.5% since May. Some currencies offer higher returns (South Africa, Brazil, etc.) but the yield on Australian dollars is way ahead of the US dollar’s 0.125%, sterling’s 0.5% and the euro’s 1%. At 3%, the New Zealand dollar comes closer but loses out on the cigar.
Australia managed to dodge the recession. That is largely the reason why the residential property market there has not suffered the setbacks experienced by Europe and North America. A shortage of housing stock and a strong employment situation has, according to analyst Gerard Minack at investment bank Morgan Stanley, pushed prices 40% above what he considers fair value. Prices doubled through the late nineties and have remained firm for the last five years.
Indeed, Statistics Australia reported an average 18.4% price rise in the big cities during the 12 months to June. Melbourne led the way with a 24.3% increase. Minack predicted two years ago that prices would fall by 30% between then and now. He was wrong then but prices are even higher today and he is still talking about the risk of a bursting bubble.
The UK housing market is nowhere near as bouncy. Prices have risen, on average, over the last 12 months but the change is more like 4% than 24%. But it’s not all doom and gloom. Britain’s economy grew by 1.1% in the three months to June – a little more than euroland’s 1.0% and well ahead of the United States’ 0.6% and Japan’s 0.1%. The coalition government has introduced a range of measures to bring government spending back into line with the revenue from taxation. They might not be popular with the people they affect, but without them the world would have lost confidence in the pound and its value would have fallen. It is for this reason that sterling has been able to hold its own against the Australian dollar recently: It is a trustworthy currency once again.
The Australian general election may have some effect on the Australian dollar, but what that effect will be will not become properly clear until the new government has set out its plans and investors have had the opportunity to evaluate them. If you are intending to up sticks and move your money abroad, get in contact with an experienced currency dealer who will help you to buy your Australian dollars at the best time.
Thanks to the folks at Moneycorp for this update.