A Rollercoaster Ride

A rollercoaster ride for the Australian dolar and sharemarkets

Our last news blog focused on how to survive the high Australian dollar. That became a little less relevant this week when the international financial crises - and we do mean plural, because we're talking about the US and Europe - severely buffeted both the Australian dollar and the local sharemarket.

Briefly this week Australian dollar dropped to below parity with the US dollar, thereafter climbing quickly begin to 1.03; nevertheless, a steep fall from a starting point of 1.10. It's curious that in a crisis which at least in part has been "manufactured in America" the responses been a "flight to quality" (ie. to find those investing in US bonds) and a strengthening in the USD. The market works in a perverse fashion sometimes.

One thing seems to be clear, and that is that the AUD is not yet seen in the same light as the Swiss franc and Yen - that's to say, as a safe currency in a crisis. That being true, we may be in for a wild ride with the Australian dollar value driven by USD factors, rather than domestic factors. For expatriates with money offshore waiting for a significant weakening in the Aussie dollar and a return to " more normal" long-term exchange rates this may mark a turning point, but given the anaemic condition of the US and European economies we wouldn't bet on it. You may however like to consider transferring some money at opportunistic, weak points in the currency trend.

As for the sharemarket, bloodbaths of the type we have seen over the last week or so can be more stressful for expatriates than Australians at home. The reason is simply that it is harder to react to these events when outside the country - but that may be a good thing when the best approach may be to do nothing! Obviously, much depends upon your personal situation but while phoning your financial planner back home at odd hours of the morning or night might make you feel better, you need to think about your position from a strategic rather than the kneejerk position. In fact, the Australian equities market, for a variety of reasons, has not risen post the GFC at the same rate as markets in the US or Europe generally - so you need to ask the question of why we are so closely shadowing these markets in their perambulations. In fact you begin to wonder why we bother with the ASX.

The chart demonstrates the "wild ride" we have had both in terms of the Australian share market and foreign exchange markets since July 1, 2011 - both shares and the AUD starting at 100% on that day.
 

ASX200 versus AUD/USD in August 2011