Guidance needed

A question about : Guidance needed

Hi all

Just wondering if there are any currency market experts out there that may be able to give me a little guidance.

I currently have a significant amount of Euros just sitting in a UK bank account earning no interest at all. My long term goal (perhaps 1-2yr) is to eventually convert those savings into Australian dollars (since I will be moving to Aus sometime this year/next year and will then eventually look into purchasing property in Aus).

So I'm trying to work out how to best make these Euros work for me in the interim. I don't want to lock them into any fixed long term savings - I want the flexibility to be able to access them when I wish.

So I thought of doing some currency trading (I already have set up EUR, GBP, USD & AUD accounts in same bank) but as we know currency figures are never certain, hence the only thing one can do is to make as much of an informed choice possible based on the 'forecasts/speculations'.

The 'current' forecast is that by year end 2015 the EUR may become weaker against both GBP (0.70) and USD (1.00). I therefore potentially thought of:
- buying some GBP (earn some interest on the GBP), then buy back EUR at year end (and potentially have made some money in the final exchange).
- could potentially do the same with USD (but make no interest as my USD account in UK offers no interest)

The other thought was to potentially buy some AUD now, as the end year forecast is that the EUR may also weaken with AUD (1.33) and then at year end buy back EUR and make a gain there (however there was talk that Aus Reserve bank may yet again drop interest rates later in the year so if that were to happen there could be fluctuations).

Also I need to keep in mind what the AUD is doing with these other potential currencies, as I don't want to get caught out making a gain with one currency to only discover that the AUD has been getting stronger throughout the year and potentially lose all those gains in the long run once I decide to eventually convert to AUD. Make sense?

Anyway just wondering if anyone had some advice they could offer me. Would really like to hear your thoughts, since there is so much intellect knowledge on this forum.

cheers

Best answers:

• If there is a consensus forecast about what the rate will be next year and that forecast turns out to be correct, you'll not really be able to 'beat the market' because the market will be just as likely to beat you. What you gain in FX you will lose in missed interest or margin cost or simply the fact that you pay commissions to buy and sell currency with a spread between the buy price and the sell price.
  If we knew what the price should be, it would already be that price, and if it is not already at that price it is because there is a good chance you could lose your shirt by gambling that it will be that price.
  You suggest, for example:
  buy some AUD now, as the end year forecast is that the EUR may also weaken with AUD (1.33) and then at year end buy back EUR and make a gain there
  But actually you don't want to 'buy back EUR', because you actually want the dollars, because you are moving to Australia.
  So really what you are saying is why don't you just buy AUD now, and then you will have them when you are ready to go to Australia. If you think EUR will weaken, you might as well just buy now because it's a relatively better time. Of course, if Aussie rates change the EUR might strengthen against it instead, or at least not weaken as much as the market has already priced in.
  Trading currency is a zero-sum game. It is not like investing in shares of companies where they grow over time. With currency trading for everyone who buys AUD relatively cheaply there is someone who has sold those AUD too cheaply and has lost out. As a professional, never mind a novice with relatively small amounts of money and relatively high trading costs, you can't expect to be on the winning side more than half the time.
  So, abandon hope on this scheme. Your goal is to have Aussie dollars to spend in Oz. So, you just need to decide whether to buy them now, or not. Maybe buy them in stages over the rest of this year / next year so you end up with a blended average rate rather than buying them all at today's rate or all at next year's rate ; either of those rates may be disappointing with hindsight.
  Forget USD - you are not going to need USD for anything and it costs commissions to buy it and commissions to sell it so just don't get involved unless you can definitely outthink the market, which you can't.
  Quote:
• Thanks bowlhead99, I appreciate your detailed response and you have some very valid points that I will definitely take on board.
  I suppose one of my concerns is that I have these Euros sitting there earning no interest at all, and since I have no departure date set for Australia and consequently no urgent need for actual AUD, I ideally wanted to make these euros work for me in the interim (since I may not need AUD for 1-2years, perhaps more). Hence the idea of buying GBP now and at least making some interest in a savings account.
• But if you incur costs to buy GBP and later to sell GBP you cut down on the net interest earned. Also, it can be false economy to hold money in one currency for a better headline interest rate and be exposed to the rate moving against you. Sure, your Ј20k might earn you Ј600 in a year which you then pay tax on so you have Ј20,500. But Ј20500 might buy 5% fewer dollars in a year than Ј20,000 buys today.
  I guess your problem is that without Aus residency it is hard to access the best savings rate for AUD. If you were over there you could easily find bank accounts giving you 2-4% but less easy to do that from here.
  https://www.infochoice.com.au/banking...e-savings.aspx
  So it is not that AUD doesn't have decent interest rates, it's just that you can't get at them. In which case it is not a terrible thing to go and earn the interest in a different country. You just have to be aware you could lose a lot of eventual value if the AUD strengthens against that currency in that time.
  But the next step of actively buying and selling currencies to predict where the exchange rates are going to move, with an edge over the market - is next to impossible. It will certainly win sometimes but other times you can lose big.
• Yes for sure if we could predict when rates were going to move then I'm sure we would all be wearing bigger smiles. I suppose I was hedging more on GBP since after all these years it has finally has started to make a gradual recovery against the AUD and is currently starting to return back to its norm values of once upon a time.
  Clearly an unforeseen turn of events could happen at anytime with the economic climate, especially in this day and age of all unexpected tragedies, but apart from that one would hope that the economic forecasts of the GBP continue to remain modestly positive
• What I've done is made investments with EUR. For instance, my Euro-denominated US funds are showing up 45% when in EUR, but much less in GBP. So they're keeping pace with the slide of the Euro, and generating some real-terms growth too. I also have investments in Eurozone funds as a better location than Euro cash.
  That might not be right for you since:
  You'd need a Euro investment account*
  It's risky
  Your timescales are too short
  You'd need to choose where to invest for growth
  So probably not very useful, but I just mention it as the kind of things that are possible.
  * It is possible to do this in GBP using a hedging scheme: eg convert EUR to GBP, meanwhile use GBP to buy Eurozone fund. But this incurs some costs.
• Thanks Porcupine for sharing this valuable information
• As has been said before, FX trading can make you a fortune but the reverse is also true. I have an understanding on how FX works but I'd still steer clear of them. I'm just not up to taking the risk. I remember when JPY mortgages were all the rage. Interest rates of 0.1% when GBP was 15% sounded fantastic but a lot of people lost a lot of money through them. Recently the same thing has happened in Cyprus with CHF mortgages.
  Have you asked about executing a forward FX at your bank? The high street banks all offer appaling exchange rates for cash but if you can open an AUD account at that bank and have a sizeable amount to convert they may surprise you. It's worth asking the question. I work at a foreign bank in London and would happily let you know the interbank market forward rate if you'd like to know. I'm very new to this site but send me a PM if you're interested.
  Note that I'm not touting for business, just offering some information. We wouldn't be interested in such business.