cheapest way to lock in strong AUD in USD?

[patient]

I wish to lock in a portion of my savings (6 figures) given the strong value of the Aussie Dollar (AUD); regardless of whether it continues to rise or fall. If i merely buy USD i face a 6.5% decline in the money due to (foregone interest difference 6.5% from ubank and 0% for USD) each year.

1) I think a forward purchase contract is a possible choice but the big banks don't give great rates though XE.com or OzForex are possible but is limited to 12 months in advance no longer.
2) Futures contract is possible but it may involve unlimited downside and my goal is to hedge not speculate. I am ignorant of futures (and options).
3) Option contract: But i was thinking i would like to be able to purchase the underlying asset ie USD. Although maybe it is not necessary to have the choice to buy the underlying asset because if i make a gain (AUD falls) then the value of the option would rise and i can use those profits to purchase the additional USD that my fewer AUD savings (in USD) can now buy. Are there other drawbacks to this approach? I think the cost is high if i trade locally (ASX) compared to overseas eg optionsxpress.

Any thoughts or ideas appreciated.

I apologise if this is too far off topic! Feel free to suggest a website i should look at.

regards

 

[Cynicor]

I may have the wrong end of the stick here, but maybe the HSBC foreign currency account/term deposit is the type of product you are interested in?

In USD they offer a max of 0.19% PA which is comparable to rates in US banks, for terms up to 1 year.

Maybe you could negotiate rates for longer terms?

If exchanging that much money I wouldn't know where to begin to achieve the best rates, most of my conversions are 4 figures max, cash in Singapore.

 

[opusman]

You're never going to get decent interest rates in USD since US interest rates are practically 0%.

 

[patient]

I may have the wrong end of the stick here, but maybe the HSBC foreign currency account/term deposit is the type of product you are interested in?

In USD they offer a max of 0.19% PA which is comparable to rates in US banks, for terms up to 1 year.

Maybe you could negotiate rates for longer terms?

Thanks Cynicor, your suggestion is the simplest but i am not sure if it is the most cost effect: the interest rate differential will be (6.5-0.19 =~6.3%) every year which would be more than the premium paid for an option/futures contract.
cheers

 

[medhead]

Other than understanding what you're talking about I know nothing about this stuff. But it seems to me that what you sacrifice on interest you stand to make up when/if the AUD goes down. Or to put it another way what you give up in interest is made up by the hedging achieved.But then you know much more about this stuff then me.

 

[Fantic125]

<snip>Any thoughts or ideas appreciated. I apologise if this is too far off topic! Feel free to suggest a website i should look at. regards

Slightly left field, but I'm sure if you hang around you will get a response.

May not be helpful, but then again it may...

 

[leemin]

I think you'll have to forgo any meaningful interest earning for the security you want of holding USD. A quick search found that interest rates are sub-one on accounts in US, UK and 1.7% in Switzerland, for example. Which explains the demand for AUD (comparably high interest rates here) and therefore the high dollar.

It's a whole other kettle of fish, but have you thought about gold bullion?

Or government bonds?

Disclaimer: I am by no means a financial expert. Rather, I'm a slightly nerdy 21y.o. interested in all things finance


Sent from my iPhone using Aust Freq Fly app

 

[gumpy]

I may have the wrong end of the stick here, but maybe the HSBC foreign currency account/term deposit is the type of product you are interested in?

In USD they offer a max of 0.19% PA which is comparable to rates in US banks, for terms up to 1 year.

Maybe you could negotiate rates for longer terms?

If exchanging that much money I wouldn't know where to begin to achieve the best rates, most of my conversions are 4 figures max, cash in Singapore.

Cynicor is spot on, HSBC is the cheapest way to lock in USD. Yes you do forgo interest but like you know the fx rates are far more volatile. Lock it in if you have a trip coming up.

 

[cove]

If you are ready you can call a big 4 bank and deal in Australia at about 15 pips off the live rate for a six figure amount.You will miss out on the interest differential between Australian high rates and US rate which is about 6% per year.That is why money is coming into our country....it's not because we have the worlds greatest treasurer nor the worlds greatest Reserve Bank governor.The reason I have used Australian Banks is there is less likelihood of a bank failure to put your money at risk.Losing 6 figures would be something that could put you off your Wheeties I would think.

 

[medhead]

Thinking about this overnight. I guess another important to consider is your timeframe. If you are only keeping it for a short term goal then the low interest rate probably doesn't matter. But I can see if holding for longer in become important. But any loss could be made up by exchange movements and you will get better interest rates as US interest rates increase, if you hold that long.

 

[Chatterbocks]

look up 'carry trade' to see why a) the aussie dollar is as high as it is now and b) why there is that interest rate differential. I think you want your cake and eat it too. Anything you try to do which is risk free will have the interest rate differential calculated in (eg - shorting the AUD/USD pair or buying USD futures)

If you could also get 6%+ in usd account, the aussie $$ would not be at 1.07 today.

 

[k_sheep]

Probably a silly point, but if you're investing such large sums, wouldn't you be better off investing some of that cash in a good financial advisor, rather than a bunch of travel mad keyboard warriors?

I understand there's all types of expertise on this forum, but you just can't tell ....

 

[cove]

I decided to put about 10 % into lifestyle assets so that combined with a high Aussie dollar got me looking outside of Australia. I think the high exchange rates have created the "rainy day" for the older group of post war baby boomers.Interest rates in America are still forecast to be in the gutter until at least July so waiting for Godot who never turns up is not likely to change.

 

[patient]

Probably a silly point, but if you're investing such large sums, wouldn't you be better off investing some of that cash in a good financial advisor, rather than a bunch of travel mad keyboard warriors?

I understand there's all types of expertise on this forum, but you just can't tell ....

The power of the network... I believe some smart cookies here may want to share some good thoughts.

In an earlier comment Cove noted that the big banks are very price competitive for large sums -this was news to me. And some others Medhead et al have made some good points.

I am still waiting for some suggestions on options/futures but perhaps this is too far outside the usual posts here.

Re financial advisors, i lack trust in them. It would need to be a word of mouth recommendation for me to test one out. But you have reminded me that i do know someone in the finance industry so will drop them a line.

cheers

 

[cove]

In Australia your money is still one equals one dollar.Move 6 figures into US dollars and looking to do something without a plan is not really a crash hot idea.I studied zillow.com for a year and a half before I bought an asset in US dollars and I waited for a deal once I had decided on a person to use.The Federal deficit and the State deficit in California are both huge numbers and that is why America is in the buggered category.Take your time and be very,very careful especially if you go real estate or stock market seeing bank interest is 0.25%.

 

[nickfromeastryde]

Personally I don't think there is any guarantee the AUD has gone as far as it can. Whatever you do your still betting on the dollar going one way or the other, if you get it wrong you could lose a lot more than the interest income foregone

 

[Sprucegoose]

Get professional advice, this is a frequent travelers forum!! Proceed at your peril, good luck

 

[TiredOldFlyer]

Dangerous - Currency Trading is for the experts.

jlm might be right - consider gold, oil, commodity futures etc but remember for every one that wins somebody must loose !

Another thought :

Some of the smarties are buying USA Real Estate and claiming good rental returns.

I'm not a financial adviser - I'm just old and Tired !

 

[patient]

Thanks for everyone's thoughts. I apologise for not giving some context. I am hedging the strong Aussie dollar as i will be traveling in SE Asia for over one year (and hopefully longer).

I suspect the AUD may strengthen further however i wish to lock in the strong rate before it retreats (another belief based on the assumption that USA will correct itself -not before stuffing up further); also i was only going to hedge a proportion of my cash not all of it-diversification.

I am a follower of buffett/munger so dont trade and also dont believe a forex trader is any more knowledgeable about the future than anyone else - they simply make their money by charging a commission for trading - we take the risk and they take the profits. I agree the best would be to purchase income producing asset eg real estate/stocks in USA or asia. But i like cash and lack the skills/knowledge to purchase USA assets although real estate in usa is tempting as are some stocks eg BRK etc. If Cove would like to share some recommendations on who to contact about his/her purchase in the states i would love to hear more.

I was hoping to have my cake and eat it eg earn nice interest rates in AUD and hedge the currency through option/future/forward contract/swap and wondered if someone had done something like that here, apparently not

I do have some more practical travel questions and will embark on those closer to the date.

cheers one and all.

 

[Sprucegoose]

Thanks for everyone's thoughts. I apologise for not giving some context. I am hedging the strong Aussie dollar as i will be traveling in SE Asia for over one year (and hopefully longer). I suspect the AUD may strengthen further however i wish to lock in the strong rate before it retreats (another belief based on the assumption that USA will correct itself -not before stuffing up further); also i was only going to hedge a proportion of my cash not all of it-diversification. I am a follower of buffett/munger so dont trade and also dont believe a forex trader is any more knowledgeable about the future than anyone else - they simply make their money by charging a commission for trading - we take the risk and they take the profits. I agree the best would be to purchase income producing asset eg real estate/stocks in USA or asia. But i like cash and lack the skills/knowledge to purchase USA assets although real estate in usa is tempting as are some stocks eg BRK etc. If Cove would like to share some recommendations on who to contact about his/her purchase in the states i would love to hear more. I was hoping to have my cake and eat it eg earn nice interest rates in AUD and hedge the currency through option/future/forward contract/swap and wondered if someone had done something like that here, apparently not I do have some more practical travel questions and will embark on those closer to the date.cheers one and all.

Buy USD now and throw into a HSBC account. Quite simple really.There is a Fund run out of CBR that specializes in US property, Manhattan in particular. Try Dixon advisory?