The Aussie dollar (attention Gen)

oz0707

I'm looking to swap some AUD for GBP in July. There is a Rate meeting 2nd July and I'm thinking if (as suspected) they don't drop their interest rate will this provide short term support. Obviously I want AUD as strong as possible until I trade. Thoughts?

Genarali how simple is a forward contract to set up? What are the penalties if you cannot do the deal (asset hasn't sold)? The way it reads you can take all currency risk out of the trade.

Generali

oz0707 wrote: »

I'm looking to swap some AUD for GBP in July. There is a Rate meeting 2nd July and I'm thinking if (as suspected) they don't drop their interest rate will this provide short term support. Obviously I want AUD as strong as possible until I trade. Thoughts?

Genarali how simple is a forward contract to set up? What are the penalties if you cannot do the deal (asset hasn't sold)? The way it reads you can take all currency risk out of the trade.

A forward contract is a matter of making a phone call once the account is set up. Setting up an account will have the normal ID stuff and a credit check.

When the forward's 'value date' (date where you pay the cash) comes up you'll need to make good on the deal. Normally you just settle whatever the profit or loss is on the trade.

If you've made a loss then you most likely won't have to find any extra cash as your margin should cover it. I you've made a profit it'll be credited to your margin account.

RJP33

Working in Australia currently I wouldn't be at all surprised to see it go back towards $1.50 again over the coming months once the current love affair with the USD subsides and the election passes.

There's clearly a lot of shorting at the moment, but it's a resilient currency for a very strong economy and similar predictions about $0.80 USD a while back didn't come to fruition.

HAMISH_MCTAVISH

Generali wrote: »

An alternative to all of this would be to do the following:

1. Borrow against the AUD asset
2. Convert that money into GBP (i.e. lock in today's spot rate)
3. Repay the AUD loan on sale of the asset

In effect you're setting up your own forward trade as the way forward prices are calculated is by borrowing the short currency and putting the long currency on deposit.

The great advantage here is it's simple: you understand exactly what you're doing so you can't get stung. .

Very helpful Gen as always, cheers for that. I think that's the way to go.

I'll PM you once I'm ready to pull the trigger just to make sure I've not missed anything.

Generali

HAMISH_MCTAVISH wrote: »

Very helpful Gen as always, cheers for that. I think that's the way to go.

I'll PM you once I'm ready to pull the trigger just to make sure I've not missed anything.

It'll almost certainly be the way to go because you understand it and can structure the loan to take any timing risk out of the equation (e.g. If the asset is a house or other illiquid asset it might take longer than expected to sell).

The only problem I can see really is that you retain some currency risk as payments on the loan will have to be made in AUD. I guess you could hold 18 months of repayments in AUD to cover that.