I am the first to confess that I never believed that the Australian dollar would pass the USD80c mark, but this week it did.
Anyone that has had a conversation with me about the currency would know I believe three key drivers push the dollar, Oil Prices, Activity in Iraq and the actions of US President George Bush Jnr.
This last week, we sadly saw increased activity in bombings and sunsequent deaths in Iraq, Oil prices pushed past US$60 per barrel and the US Senate having an ongoing standoff with Bush about the cost and additional deployment of US Troop activity in Iraq.
Although I always thought the US80c was an upper ceiling, however the combination of negative news in all three areas at the same time provided the momentum to pass that barrier. Only a few weeks ago the AUD tested this barrier, but low Oil Prices kept is under the US80c level. Not this time.
In my mind the outlook remains the same, that is the US Dollar is weak rather than the Australian Dollar strong, and hence this may be a temporary situation.
The ongoing volatility in the three key areas means that speculation may win over fundamentals in the short term, so the potential for continued strengthening of the Australian dollar does exist, however there would appear to be a more logical argument to suggest that the US Dollar should regain the lost ground.
At times like these, it is best to acquire Australian property with existing equity rather than converting foreign cash into AUD, so if you already have property in Australia it is worth considering how much equity is available in case you want to put it into action.
When borrowing in a currency other than Australian dollars (which can potentially have a “cheaper” interest rate), the golden rule is always to borrow in the currency most likely to weaken, so with the Australian dollar achieving new heights it is a time for those that have foreign currency loans to convert back to Australian dollars, if they feel this may be a short lived correction.
Our Special Tool, the Foreign Currency Assessor, will allow you to quickly establish the true cost of borrowing in a foreign currency, by calculating the potential currency gain or loss over the next rollover period.
You will also find lots of essential educational material about Multi currency lending in the Finance Section of the aussieproperty.com website.
At a time like now, when the currency is at extreme traditional levels, you must be more diligent than usual in monitoring your multi currency facilities and I would strongly suggest that you to use this tool on each rollover occasion, as the investment of a few seconds of your time could save you thousands of dollars on your loan regardless of which way the currency may go.
