Australian dollar found new level

On 7 May, the Reserve Bank of Australia (RBA) cut its benchmark interest rate unexpectedly by 25 basis points to 2.75 per cent. This is record low since 1960. I remembered hearing a commentator on Channel NewsAsia saying that there will not be a rate change in that Tuesday morning. This caught many investors by surprise.

By mid-day, the Australian dollar against Singapore dollar (AUD/SGD) dropped from 1.270 to 1.261. It continued to decline for two weeks to 1.230. This is 3.1% loss of value for the currency. Australian dollar has been hovering at 1.230 level.

I have exposure in Australian dollar and am still holding it. I cannot strike back to Singapore dollar at my cost (which is 1.275). If I contract to a lower strike price, I would then realise a loss the next time round when conversion to Singapore dollar takes place.

So what is my investment choice? I took a one-month fixed deposit in Australian dollar which earn interest of 2.245% per annum. This is buying time to see whether Australian dollar will rise in a month’s time before I get back into currency-linked investment again.

Australian dollar is termed a commodity-linked currency because of its mining industry economy. If China continues to slow and Australia’s economy falters, there is little hope that RBA will be raising its interest rate anytime soon. The level of Australian dollar may not move up from current level. Let’s see what happen between Singapore and Australia.

Copyright © 2013, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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