The Aussie dollar (attention Gen)

HAMISH_MCTAVISH

I note it has fallen from circa 1.45 to the GBP to circa 1.65 to the GBP.

Very good news for most of the real economy in Australia, but that's not what this thread is for.

Gen, specifically, but also anyone else with a bit of knowledge of forex.

What is the likeliest trajectory over the next 12-18 months?

I've run across an opportunity for a bit of arbitrage but it's going to take some time to play out, and I'd need to commit a fair amount right away.

A further 20% slide wouldn't be a deal breaker, anything more than 30% would see me break even at best.

Edit: transposed figures - oops

dryhat

Been on HPC again, have you?

Generali

HAMISH_MCTAVISH wrote: »

I note it has fallen from circa 1.65 to the GBP to circa 1.45 to the GBP.

Very good news for most of the real economy in Australia, but that's not what this thread is for.

Gen, specifically, but also anyone else with a bit of knowledge of forex.

What is the likeliest trajectory over the next 12-18 months?

I've run across an opportunity for a bit of arbitrage but it's going to take some time to play out, and I'd need to commit a fair amount right away.

A further 20% slide wouldn't be a deal breaker, anything more than 30% would see me break even at best.

Someone who shall remain nameless but who I respect a lot reckons AU$1 = US$0.80 is where this is aiming. Possibly within 3 months but more likely over a longer period of time. US$0.75 is our absolute floor.

He's really good: he's been predicting market movements for a living since before I did my O' Levels (NB not GCSEs).

My rule of thumb is $2.25/$2.50 = £1 long term. The Pound is likely to stay down for quite a while I suspect so we could say a floor of $2 = £1.

Can you hedge the currency risk? If you do it with an option rather than a future you have a strictly limited cost and that would work exactly like an insurance policy. If you buy something a long way 'out of the money' then it will be cheap.

HAMISH_MCTAVISH

Generali wrote: »

Someone who shall remain nameless but who I respect a lot reckons AU$1 = US$0.80 is where this is aiming. Possibly within 3 months but more likely over a longer period of time. US$0.75 is our absolute floor.

He's really good: he's been predicting market movements for a living since before I did my O' Levels (NB not GCSEs).

Thanks.

Adds another variable though....

My rule of thumb is $2.25/$2.50 = £1 long term. The Pound is likely to stay down for quite a while I suspect so we could say a floor of $2 = £1.

I'd broadly agree, but the question is, are we likely to get there in the next 12-18 months?

Can you hedge the currency risk? If you do it with an option rather than a future you have a strictly limited cost and that would work exactly like an insurance policy. If you buy something a long way 'out of the money' then it will be cheap.

What would be the simplest way to do that for someone who doesn't do this sort of thing for a living?

dryhat

HAMISH_MCTAVISH wrote: »

What would be the simplest way to do that for someone who doesn't do this sort of thing for a living?

... Bitcoin?

Generali

HAMISH_MCTAVISH wrote: »

Thanks.

Adds another variable though....



I'd broadly agree, but the question is, are we likely to get there in the next 12-18 months?

Ok, I have a problem here. Most currencies are measured against the USD. If you want to measure the Pound against the AUD then there are 2 calculations and it's too hard to do.

HAMISH_MCTAVISH wrote: »

What would be the simplest way to do that for someone who doesn't do this sort of thing for a living?

The trade you want would be something like a put option for AU$1.8 = £1. That would give you the right, but not the obligation, to exchange $1.8 for £1 either on or before a certain date. As you have cash on both sides of the trade you need to understand whether you're able to swap £ for $ or $ for £.

As that's 'out of the money', that is to say you wouldn't want to exercise your option right now as currently you could swap $1.60 for £1, that would be a very cheap option to buy.

RBS, HSBC or Barclays could probably help you put this sort of trade on. As I say, it's really just an insurance policy with an excess. The tricky bit really is looking at the best 'strike price' (the $/£ rate) to use so you have minimum 'excess' for minimum cost.

PM me if you like and I can go over this with you on the phone as that's much easier. I can explain this stuff but it's hard to do in writing and briefly.

Generali

dryhat wrote: »

... Bitcoin?

Those are for buying drugs and paying off assassins.

dryhat

Generali wrote: »

Those are for buying drugs and paying off assassins.

What, like cash you mean?

HAMISH_MCTAVISH

Generali wrote: »

Ok, I have a problem here. Most currencies are measured against the USD. If you want to measure the Pound against the AUD then there are 2 calculations and it's too hard to do.

:rotfl:

Very true.

Trying to figure out the likely trajectory of three economies/currencies over the next 18 months has made my head hurt this morning.:)

The trade you want would be something like a put option for AU$1.8 = £1. That would give you the right, but not the obligation, to exchange $1.8 for £1 either on or before a certain date. As you have cash on both sides of the trade you need to understand whether you're able to swap £ for $ or $ for £.

As that's 'out of the money', that is to say you wouldn't want to exercise your option right now as currently you could swap $1.60 for £1, that would be a very cheap option to buy.

RBS, HSBC or Barclays could probably help you put this sort of trade on. As I say, it's really just an insurance policy with an excess. The tricky bit really is looking at the best 'strike price' (the $/£ rate) to use so you have minimum 'excess' for minimum cost.

PM me if you like and I can go over this with you on the phone as that's much easier. I can explain this stuff but it's hard to do in writing and briefly.

Thanks.:)

Will take you up on that at some point.

Take it I could put the hedge in place later, it just may cost me a bit more if the spread has narrowed by that time?

Generali

HAMISH_MCTAVISH wrote: »

Take it I could put the hedge in place later, it just may cost me a bit more if the spread has narrowed by that time?

There are basically four things that drive options prices:

1. Current price (closer to current price = higher price)
2. Volatility (higher volatility of prices = higher cost of option)
3. Length of time until the option expires (longer option period = higher cost)
4. Current interest rate expectations (higher interest rates = higher price)

4 is a small number right now, 2 is rising but could fall back again. Who knows. 3 is in your control but you have no insurance until you buy the policy. 1 is what it is.

Oh and a spread is really a measure of liquidity. Not a problem in GBP/AUD.

dryhat

Seriously McT ...... I don't know what you're trying to do but it would definitley be worth seeing if you can do it with Bitcoin.

For the first time in history you are able to send payments to anyone in the world - instantly, securely, anonymously - for practically zero cost and without any interference from a third party.

It is money for the technological age and its use is growing by the day as more people see the benefits of this fantastic invention.

Bitcoin, or something like it, is the future of money and will change the world in the same way as the internet did 20 years ago.