Daily Archives: September 27, 2011
The current volatility on financial markets has everyone in a spin. Stock markets are up and down like a yo-yo, Gold the ‘untouchable’ safe haven has lost 20% from its high of the year and the US dollar has climbed around 12 cents against both the pound and the Euro as investors flee other assets. World leaders are frantically drawing up a €3 trillion plan to ‘save the Euro’. And by save the Euro I mean save the world, because quite frankly something has to be done soon in Europe or the whole world will be tipped back to recession. Some already think this process is underway and cannot be stopped…
This volatility is however presenting some great opportunities on the New Zealand dollar, the Australian dollar and the South African Rand. But why? These currencies have been strong because they have economies strongly linked to the global performance of commodities. When global demand is up these economies (particularly the Rand and the Aussie) benefit from investment. When there are signs that the global economy may be slowing we can then see these currencies weaken as investors come to the conclusion that they won’t get much stronger. These currencies also benefit from investment because they have higher interest rates than most other central banks. Australia’s is 4.75%, New Zealand 2.5% and South Africa 5.5%. ‘Carry Trading’ is where investors borrow in a low interest yielding currency (JPY, USD, GBP) and invest in a higher yielding currency (like the ones mentioned) to benefit from the interest rate differential – essentially they get a better return on their investments.
The current volatility and uncertainty is therefore providing spikes on these currencies but the movements are very sporadic and highly unpredictable. I would strongly recommend employing Stops and Losses to protect your rates. A Stop / Loss and Limit order is where we set limits and levels in the market where we automatically trade for you when levels are hit. Due to timezone differences your ‘ideal rate’ could occur late at night or early in the morning, using these tools means you can benefit from the current uncertainty not suffer. If you are selling these currencies for any reason I would be very concerned that you could quickly lose out on trading at some of the strongest periods in the histories of these currencies against the pound. Despite the single digit percentage losses for anyone selling, things could easily get much worse should investors really abandon these currencies.
If you have any requirements for any of these currencies (or any others) we can keep you informed of the spikes that will maximise your transfers. We are specialist currency brokers who have won awards for our commercial exchange rates and exemplary service. If you wish to discuss any issues surrounding your currency transfers please call (+44) 01494 787 458, email email@example.com or fill in the contact form. If you contact me direct please quote JMW and PSF. I look forward to hearing from you.