8th June

Hurrah, at last the Pound is starting to make headway against the Australian Dollar. Those who need to buy Aussie Dollars to start their new life down under have seen the value of their Pounds advance from the A$ 1.62 we saw in March and May to A$ 1.77 which I can see at the time of writing.

That 15 cent rise (approximately 9.25%) has happened as the financial markets have come to terms with Australian interest rates staying on hold for the time being after several months of hikes, it has come about as we view a slowing Chinese economy which will slow demand for Australian exports and as the markets assess a slightly more gloomy picture of the global rise from recession as the Eurozone credit crisis still looks like it could spread to other economies.

Sterling, for its part is being boosted by a new government making a start on the overdue reduction in frighteningly high UK government debt and the Pound is benefitting at the Euro’s expense as investors seek somewhere a little healthier than Europe to house this funds. So that is what got us to where we are; the big question is whether this recovery can continue and, with crystal ball in hand and suitable amounts of silver crossing my palm, I can give a qualified response to that.

The short term target for the Sterling – Australian Dollar exchange rate is A$ 1.83; the same high we have seen cap the market since October 2009. Between October 2009 and February 2010, this exchange rate was tested four rimes; each attempt failed and was followed by a sharp drop of between 6 and 10 cents. Now that was at a time when the Pound had fallen for a full year in the aftermath of the collapse of Lehman Brothers and when we hadn’t bottomed out yet. Hopefully we will see a little more vigour in the Pound’s next attempt at this level but those with a short term requirement and those who just want to convert some of their funds at an exchange rate some 13% higher than just one month ago, will leap at this opportunity.

Those with longer term plans or who haven’t liquidated their assets yet may want to hold off from converting all their funds just yet in the hope that Sterling blasts through this ‘resistance’ level on its way back to much higher exchange rates in the months ahead. As long as this exchange rate stays above A$ 1.70 and it must certainly stay above A$1.60, then there is a good chance that this could happen but this prediction comes with a word of caution.

Sterling is riding high during the new government’s honeymoon and is being flattered by the problems being faced in the Eurozone but the UK is not immune to Europe’s credit problems and UK banks have a significant exposure to countries like Greece, Spain, Portugal and Ireland as well as other countries like Hungary which declared this week, that it has the same sorts of problems as Greece.  If this crisis turns into a full scale panic, the Pound will be damaged by the fall out and that could well turn this rally into a very sideways pattern or even another sharp decline.  The only sure fire way to avoid the damage that such a move could cause to your finances is to properly manage the risk of such an eventuality.

What I would certainly advise is that you enlist the help of a currency market specialist to help you plan your currency transfers and to set a strategy in motion to ensure you do not suffer if the worst case scenario comes to pass.  There are many ways to make sure you do benefit from the spikes and don’t suffer at the hands of the troughs but sensible planning in these volatile conditions is best done with the right tools for the job at your disposal. Your high street bank is very unlikely to be able to afford the time you need to discuss this type of plan and just as unlikely to have branch staff trained in the intricacies of currency market risk management. A good currency specialist like Halo Financial will be able to do both and your life and your plans will become simpler as a result.

David Johnson (Director)

Halo Financial Ltd