There has been continued weakness in commodity prices and stronger than expected US private-sector jobs growth overnight combining to take the Australian dollar through critical support at the 0.8650 mark. The Aussie hit a four year low overnight of 0.8565 as the Greenback strengthened across the board.
Investors are now viewing the next major downside target of 0.8350 followed by the 2010 low of 0.8050. Topside targets now in place at 0.8650 in what’s shaping as a volatile end to the week. Australian unemployment data came in right on expectations at 6.2 per cent providing some respite for the currency.
Currency markets breathed a sigh of relief following the release of the European bank stress tests. After nudging 1.2600 against the greenback last week the euro started the new week on a positive note, pushing above 1.2700 seemingly buoyed by the results.
Of the 130 banks tested across the region 25 failed, with the ECB identifying a gap of 24.2 billion euros in capital required as of the end of 2013. When you distil this down further the results seem more benign with 19 billion already raised this year, the aggregate shortfall is reduced to 6 billion.
The markets will now focus more specifically on the five major banks that need more than 200 million euros and must submit a capital plan, no doubt more headlines will follow.
Stronger European banks no medicine for growth
The credibility of the tests are quite rightly being questioned but on the positive side the result is significant because it emphasises the large capital raising and de-leveraging efforts the banks have undertaken since the last stress tests in 2011. The good news is that bank spreads have tightened making them more stable – for now.
Although the banks are in a stronger financial position the European economy is still not looking that flash. The economic slowdown appears to be spreading from the peripheral to the core with signs of weakness in Germany and fears of a deflationary spiral across the region still evident.
With the ECB only just beginning to print money the banks will no doubt be encouraged to “give” more money away, but there are still question marks around how much of this money will reach the real economy and whether it will positively impact growth.
It’s a big week for the Australian dollar this week, which will likely see volatility continue. Three RBA officials are due to speak (Assistant Governor Christopher Kent, Deputy Governor Philip Lowe and Governor Glenn Stevens) in addition to monetary policy minutes and inflation
AUD/USD has been trapped between 0.8650 and 89 cents, it’s sitting in the middle of it now but if Stevens and company err on the dovish side then we could test 0.8650 again this week. On the domestic data front we’re expecting both headline and trimmed mean CPI to soften, also weighing on the AUD.
We’re also expecting to hear RBA officials talk to global growth concerns, asset price rises, commodity markets and terms of trade and of course the Aussie dollar.
It’s no coincidence that Glenn Stevens goes last as he may need to clarify any comments made earlier in the week should the market react in an unexpected manner (or too aggressively)
Can the Greenback continue to rise?
Markets ignored US Federal Reserve chair Janet Yellen’s comments about growing inequality in the US and instead focused on consumer sentiment figures. These exceeded expectations, coming in at 86.4 vs 84.3 forecast, the highest reading since July 2007 – pre GFC levels
The US dollar gained ground against the majors and gapped higher against the Yen on the open this week as well. It shows a shift away from the risk aversion trade that saw the Yen strengthen in recent weeks, in my view optimism could linger a little longer but the US is not out of the woods yet.
USD can continue to strengthen but have to be selective – I prefer a long USD position against the Euro still, with USD/JPY too susceptible to shifts in risk sentiment. Continue reading →
As Australians we love to make jokes at the expense of our Trans-Tasman neighbours, but the Reserve Bank of New Zealand’s management of interest rates in the face of a rising currency is one to be admired. Notwithstanding some of the differences in our two economies, it took some nerve for New Zealand’s central bank to raise rates by 1 per cent earlier this year, despite what was a rising New Zealand dollar at the time.
On March 13, when the RBNZ increased interest rates from 2.5 per cent to 2.75 per cent, it was the first change in over two years. At the time the New Zealand dollar was trading above US86c, around 2 per cent below its all-time high. The bank then subsequently raised the official cash rate three more times to 3.5 per cent, pausing in July when the exchange rate was above US88s. For a small island nation that relies so heavily on its exports, one could call this a rather risky strategy.
It was however a necessary step in order to curb inflationary pressures stemming from a booming housing market which, combined with the introduction of new macro prudential measures, are showing some signs of working. In contrast to the RBA, the RBNZ overlooked the elevated currency and raised rates anyway. Continue reading →
The signs have been clear for some time: the Aussie dollar should be lower. Commodity prices and iron ore in particular have been in decline for several months already. The Federal Reserve made it clear early in the year that the quantitative easing program would be coming to an end around October and the European economy never really got moving. China was expected to engineer a soft landing with economic growth to come in at around 7.5 per cent, well below the historical levels, which are closer to double digits.
Despite all these signs, the local unit has been resilient. I expected this phenomenon to continue for a few months yet, so have been surprised by the recent price action. Over the last week the big shift lower intensified once support around the US92c level gave way, pushing it below the psychological US90c level.
With the absence of any new news the question many are asking is — why now? Why is the Aussie dollar suddenly reacting to information we already knew? Continue reading →
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It’s a huge week ahead on the data front for the Australian economy. We have building approvals, GDP, retail sales and trade balance all out — can any one of these sway the Aussie dollar one way or another?
GDP is obviously particularly critical as it’s a key measure of economic growth. The market is expecting a pull-back from first quarter +1.1 per cent result to a second quarter reading of +0.4 per cent. This would bring the annualised rate down from 3.5 per cent to 3 per cent, but it is somewhat of a lagging indicator.
The beauty of this week’s releases is that we get a broad reading on the domestic economy, with data providing some insight across a number of fronts. Building approvals are important for construction activity and general confidence in the economy; so too are retail sales and the state of the consumer.
I can’t see any of these moving the Aussie out of this range unless we get a softer-than-expected GDP reading of say 0.2 per cent or less for the quarter — in this scenario we could see a re-test of strong support between 92c and 92.50c.
RBA decision due
Will today’s Reserve Bank of Australia meeting have any impact on the currency this time? Well we know the RBA has been struggling to exert real influence over the Aussie, despite continued attempts to talk it down. It’s not the only one concerned about the local unit’s strength: BIS Shrapnel recently blamed the high dollar for sapping the strength of Australia’s economic recovery. Continue reading →
As the US dollar rally starts to gather momentum, the euro is approaching its lowest levels in almost a year.
Divergence between the FOMC and ECB interest rate outlooks has been the main driver behind the move that has seen the euro fall 6 per cent since early May. The wedge between the two is only getting wider, with comments from both US Federal Reserve Bank chair Janet Yellen and European Central Bank president Mario Draghi dragging the euro lower over the weekend.
Change of tone in the US
Most of the focus from the Jackson Hole symposium over the weekend has been on remarks made by Janet Yellen. Her comments on the North American economy appear more neutral than hawkish as some have suggested.
They are, however, less dovish as the market has come to expect, and it was a reference to interest rate hikes potentially coming “sooner than market participants currently expect” that sparked a flurry of demand for the greenback. Although the timing on US interest rates is unclear, Yellen’s tone is to be expected, especially from a central bank edging very slowly towards monetary policy tightening.
Economic data takes centre stage
Looking beyond the headlines, it is clear there are still some considerable risks ahead for the US economy. The Fed is looking at much more than just the unemployment rate for a reading on the employment market. Continue reading →
AUD/EUR Fundamental Outlook
AUD/EUR continued gaining ground in July, gaining another +0.9% overall for the month. The gain in the cross was in part due to asset flows and risk appetite favouring the Aussie over the Euro, the interest rate differential and as both economies reported mixed economic numbers. Economic data out of Australia was on balance better than Eurozone numbers, although weakness was evident in Retail Sales, Building Approvals and the Trade Balance.
Traders will be looking to the ECB rate decision on the 7th, as well as the RBA’s Monetary Policy Meeting Minutes for a better perspective on the direction of the cross. Due to weakness in the Eurozone, the rate differential and improving numbers in Australia, the outlook for the cross is positive in the near and medium terms but neutral longer term.
AUD/EUR Technical Chart Outlook
After making a 0.6314 low in late January, AUD/EUR has since been rallying correctively. The cross made yet another recent high at the 0.7035 level on July 23rd after breaking up out of a mildly declining consolidation range on the 21st.
The outlook for AUD/EUR over the coming month is mildly bullish short term and more bullish in the medium term while the channel top line break is sustained to set up a 0.7780 breakout target. Continue reading →
AUD/USD Fundamental Outlook
AUD/USD reversed direction in July, dropping -1.4% for the month overall. The decline in the rate was in part due to speculation of tightening by the Federal Reserve, continued dovish RBA monetary policy and mixed economic data from both countries. Australian economic numbers were mostly better than expected or on target in July, with the notable exceptions of Building Approvals, Retail Sales and the Trade Balance, all printing lower than the analyst consensus. In addition, the Australian Unemployment Rate rose a notch to 6% from 5.9%.
Traders will be looking to the RBA’s Monetary Policy Meeting Minutes on the 19th and the FOMC Meeting Minutes on the 20th for a better indication on interest rates and the direction of the exchange rate. Due to continued risk appetite favouring the Greenback, the outlook for the rate is neutral in the near term, lower in the medium term and higher in the long term.
AUD/USD Technical Chart Outlook
After AUD/USD peaked at the 0.9461 level in early April, the rate has since been range trading between that high point and the 0.9202 low of May 1st. Early July saw the rate decline within this range to 0.9378 before then rallying to 0.9474 by the 23rd. The rate subsequently sold off to call as far as the 0.9275 level by July 31st.
Overall, AUD/USD’s medium term outlook gives a neutral to mildly bearish appearance while trading between its 61.8% and 50% Fibonacci retracement levels at 0.9271 and 0.9573 respectively. Continue reading →
GBP/AUD Fundamental Outlook
GBP/AUD gained fractionally in July, increasing 23 pips or +0.1% overall for the month. The marginal increase in the cross was in part due to asset flows favouring Sterling over the Aussie and with mixed economic numbers out of both countries.
Traders will be watching the BOE rate decision on the 7th, as well as the RBA’s Monetary Policy Meeting Minutes on the 19th for a better idea on the direction of interest rates. Due to the interest rate differential and improving numbers in both countries, the outlook for the cross is neutral near term but otherwise positive.
GBP/AUD Technical Chart Outlook
GBP/AUD rallied to peak at 1.9186 in January, but then came off as far as the 1.7736 level in early April. The cross has since been consolidating within a gently rising range, making highs at the 1.8373 and 1.8364 levels in July.
Overall, the outlook for GBP/AUD looks rather neutral over the coming month until it breaks out of its current gently rising channel to signal an additional move in the direction of the breakout equal to the channel’s width. A downside break is currently preferred.
After a stint on the sidelines, Reserve Bank of Australia Governor Stevens took the opportunity to resume attempts to talk the Aussie dollar down last week. It was a timely return given the recent surge, but is it enough to send it lower?
It was the first time the RBA governor had been so explicit about the value of the Aussie dollar since he talked of 85 US cents as ‘fair value’ at the end of last year, with some analysts saying the currency could be as much as 12 per cent overvalued. Of course, currencies rarely trade at ‘value’, with this very term being quite subjective and of little significance, anyway.
Australian rates on hold – so what’s new?
What I found most interesting about Stevens’ comments were not necessarily those blatant references to the currency, which the RBA can’t really control anyway, but his views on the economy and interest rates, which of course have a real bearing on the direction the currency trades.
He downplayed any negative impact from the budget, mentioned positive early signs of growth in non-mining activity, said monetary policy is already “very accommodative” with real cash rates “well below normal levels” and that low interest rates are working. These are hardly words of a governor that is actually considering reducing interest rates nearer to zero like Europe, the UK or the US.
All in all, I don’t think we got as much out of Stevens as the market has made out. He confirmed interest rates will remain on hold for an extended period. We knew this anyway.
Stevens needs Yellen
For the RBA to get its way and have the Aussie dollar trade back towards 85 cents, it really needs the greenback to rally. On that front the RBA has bought itself some time.
Stevens needs Yellen to do the heavy lifting — or should I say AUD selling — by providing some timeframe for an adjustment in US interest rates higher post QE tapering. Not likely any time soon. Continue reading →
The RBA has made a lot of noise about the economic benefits of a lower Australian dollar recently and most businesses involved in the local tourism sector, and exporters in general, agree a lower currency would help them remain competitive.
Some manufacturers might beg to differ however. In theory a lower Aussie dollar can help make locally-manufactured goods more competitively priced compared to imported goods. In reality, things aren’t so simple.
A 10 per cent drop in the Aussie dollar will, eventually, make imported goods more expensive. Crucially though, this will not necessarily translate to a 10 per cent increase in business for the manufacturer. What it can do is actually increase costs by 10 per cent without a noticeable rise on the other side of the ledger.
Some OzForex clients are expressing a preference for a higher Aussie dollar given they import many raw materials that go into the manufacturing process. Continue reading →
Excited to announce that the BestExchangeRates team and friends (pictured below) will be converging from Australia and the UK to Japan for a field study trip to research all matters Yen AUD/JPYGBP/JPYand oh a few powder runs and Onsen along the way
Along the way we will compare using Cash, Bank Credit Cards and Prepaid Multi-currency Travel Cards from Travelex OzForex and QantasCash. Also to be investigated is whether Japan really is a cash only/preferred economy, and the strange and wonderfully inexplicable workings of Japanese ATMs and Toilet Flush mechanisms. Continue reading →
We first heard rumblings of discontent from leaders of emerging market economies around the middle of last year when it looked as though the US was about to commence tapering quantitative easing. These rumblings are likely to get a whole lot louder this time around though, as the impact of US policy starts to bite these economies hard.
The possibility of a Global Emerging Currency (GEC) crisis has grown over the last week with emerging market currencies around the globe such as the Argentine Peso (-5%), South African Rand (-3.6%) and the Indian Rupee (-2.2%) sold heavily in the last week alone. If it continues, as I think it may, then undoubtedly the Australian economy and the Aussie dollar will also be affected.
What’s different this time around?
What strikes me about the recent price action is that unlike previous emerging currency crises, think Latin America in the ‘80s or Asian Currencies during the late ‘90s, the selling does not appear to be geographically specific. This is not just an issue for South America or some parts of Asia, as we have also seen currencies in Europe like the Russian Rouble (-2.6%) and Turkish Lira (-4%) weaken.
This time around the catalyst is coming from one global external source and as such it has the ability to reach all four corners of the globe.
It’s not all down to US QE tapering though. There are some country specific economic factors (e.g. widening deficits or political uncertainty) contributing to the performance of each economy but the markets seem to be driven more by fear at the moment. Continue reading →
We came across an article in The Australian Financial Review today on OzForex with an interesting experiment of splitting a $200K AUD->USD transfer into two, with half sent via OzForex and the other half by one of the ‘big four’ Australian banks on the same day to compare what arrives at the other end.
The results are illuminating….!
If you have ever converted currencies or transferred money overseas, you may have been shocked to discover how much you were charged by your friendly bank to move your money.
Recently, a friend was preparing to transfer $200K overseas. I asked him if he would split the transaction into two lots, in order to try OzForex.
After signing up to their online platform, he transferred $100K through one of Australia’s big four banks and the other $100K through OzForex. Continue reading →
All Vendor currency exchange rates on BestExchangeRates are compared to what we call the Mid-Market Rate for each currency pair.
This mid-market rate (sometimes also called the interbank rate or spot rate) is used in global financial markets and what you normally see reported on the news.
It is called the “mid-rate” because it is always half-way between latest BUY and SELL rates for the currency pair.
Generally they say when investing you should buy low and sell high and that is exactly what the banks are doing with you, they buy currency from you at low rates and sell currency back to you at high rates, so unfortunately you end up buying high and selling low!
That is why most banks and brokers hide this mid-rate from you by marking it up significantly – to their own benefit. Continue reading →
There are lots of ways; most importantly you need some information. When you use BestExchangeRates you can see clearly which currency vendor is offering the best deal for your needs, most importantly who is taking the smallest margin and fees to give you the largest possible converted amount. Continue reading →
Peer-to-Peer is a recent innovation for international money transfers. The playing field is being levelled with retail customers benefiting from great rates that were previously only available to big companies. At the forefront of this innovation are ‘peer to peer’ money transfers.
Online peer to peer (P2P) first began in the early nineties, with file-sharing services like Napster, Bearshare and KaZaA. Since then, P2P developed into numerous other, more legal, uses. Skype, for example, uses a hybrid of P2P and client-server systems. P2P lending is increasingly common with sites like Lending Club and Prosper.com connecting individuals seeking funds with others able to lend money in return for interest. Even sites like Ebay and home rental service AirBnB come under the umbrella of P2P ‘collaborative consumption’.
Now peer to peer has come to the financial services industry too. Sites such as CurrencyFair.com put the power in the public’s hands, allowing you to get a great exchange rate with a safe and secure money marketplace.
P2P currency exchange and money transfer providers such as CurrencyFair bring together a network of users, each looking to exchange money for another currency. By matching you with another user selling the currency you want to buy, the P2P provider is able to offer an exceptional rate, and unlike banks and brokers, the rates are NOT dependant on how much you exchange. Every customer gets equal access to the same fair rates. Gone are the large middleman fees charged by banks and brokers.
The P2P provider, as a regulated entity, also provides security and convenience. They ensure that you can exchange safely, and that your money gets where it needs to go efficiently and quickly.
Is peer-to-peer the future of international money transfers? Only time will tell.
Many people who have traveled abroad have felt the temptation to purchase property overseas. For example, UK residents often consider buying overseas property in nearby European countries like France or Spain, Australian expats are buying property in Asia and Americans in Europe and Mexico.
Sometimes the price of foreign real estate can seem very attractive due to the foreign exchange rate favouring the prospective buyers’ currency. Tourists can also become enamoured with a delightful travel destination, perhaps leading to an interest in buying overseas property as a way to spend more time there. Still others might be interested in investing in undervalued overseas property based on the view that it will appreciate substantially over time.
Whatever your motivation for buying overseas property, the following top five tips can help assure that you have a more positive experience in doing so.
Tip #1: Investigate the Market Thoroughly
Although global property price trends do occur, real estate markets in different locales can go through cycles of rising and then correcting lower, which can be independent of each other.
In other words, just because property values are rising in your neighborhood does not mean that they are also rising abroad. Such trends are especially important for investors who will typically want to buy near the bottom and sell near the top of a cycle.
Furthermore, some countries prevent or limit real estate ownership by foreigners, so you will want to make sure that you have the legal right to purchase real estate in that country and under what conditions you can do so before handing over any money in order to avoid scams or disappointment.
Basically, it really makes sense to do your homework about the real estate market in the country you are considering making a purchase in before putting up your money.
Tip #2: Obtain Professional Purchase Assistance
Great deals can certainly be had when buying foreign real estate directly from owners. Nevertheless, if you are unfamiliar with the foreign real estate market, then purchasing through a professional real estate agent or from a reputable property developer can provide useful guidance that can help you avoid many pitfalls when buying overseas property.
Such professionals typically have an obligation to see that you are properly informed about the details of the purchase. They will also usually make an effort to complete the deal and assure your satisfaction with it.
Tip #3: Hire a Legal Representative
Although real estate deals in your country of residence generally do not require the services of a lawyer, having an independent professional attorney representing your interests and watching out for potential legal problems can be invaluable when buying overseas property.
Tip #4: Have Key Documents Translated
Before signing any documents relating to a potential real estate transaction, make sure that you have them professionally translated if they are written in a foreign language that you are not entirely comfortable reading. In general, you need to know exactly what you and the seller are agreeing to in words that you can clearly understand.
Tip #5: Saving Money on Mortgage Payments
Once you have read, understood and agreed to the terms of an overseas property purchase, you will then need to make arrangements to pay for it.
When transferring funds denominated in your domestic currency to either make a payment in full, a down payment, or a series of smaller mortgage payments, you will probably want to find a better foreign exchange solution than simply visiting your high street bank.
To speak to one of the accredited OzForex dealers about your foreign exchange requirements call 0845 686 1950 in the UK; 1300 300 424 in Australia; 1800 680 0750 in Canada or 0800 161 868 in NZ) or go to https://www.ozforex.com.au to register on line with 3 easy steps.
Registering with OzForex is FREE and you can view their live dealing rates immediately. Remember to mention you are a client of BestExchangeRates you will receive your first two transactions fee FREE!
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