A$ outlook, Kubes?

[OneForKubes]

Kubes, what's your view about the outlook for the A$/S$ ? The A$ has obviously dropped in the past week, but how much lower do you think it can go?

[Kubes.SG]

Damn good question, and not easy to predict with confidence given market, GDP, inflation and interest rate volatility in both countries.  At about $1.26 at the moment, the rate stands at about its 5-year average.  So the recent AUD drop is not exceptional, though my gut tells me there may be more chance of AUD downside in the short-term.

Why do you ask? 

[A$/S$]

Today's rate is 1.24, does anyone think we will see rate goes below 1.2 this year?

[Wondering the same...]

Wondering about the same question. Looking at taking a SGD$ loan out for a property in Australia. 2.36% vs 8.71% is a lot of difference every month. St George's last report (now several months old) predicted 1.18 at the end of this year, with risk that it only eased to 1.21. 1.237 today, although I think both the AUD and SGD will depreciate against the USD, particularly now that Singapore's economy is starting to stutter.

So I would save approx $100K AUD over a 3 year term on a $500K mortgage (not considering any interest rate movement) if the exchange hit 1.07 I'd be about even...

[SGD]

I have a chunk of AUD that I want to exchange into SGD. Not sure if I should do it now or wait and risk getting less. Anybody got an opinion on where the AUD vs SGD exchange rate would head in the short term?

[Old Mike]

If it does not go up or down it will stay the same.

[OneForKubes]

Kubes, like one of the other posters I'm thinking of getting one of those SGD mortgages to finance my house back in Australia.

[sunchaser]

Hi

I am an aussie expat here in singapore and trade FX daily

The aussie has dropped against the singapore by 11% in the last two weeks. This is completely government created as a means of reducing the SGD  local inflation against a trade weighted basket - its been quoted regularly in all major papers – stronger lcoal curency means Signaporeans can buy more international goods ( eg rice, chicken duck) for less local SGD currency which reduces costs and therefore reduces inflation so we can go to the local hawker centre and continue to pay $3 for a delicious chicken rice instead of $3.50 if inflation continued unabated.

The local currency has appreciated from AUD/SGD 1.35 to 1.21. The lowest it has been in 6 years is AUD/SGD 1.15 ( ie 5% more)

I have investigated the local market extensively for aussie secured property and have found out that Westpac will not do margin calls until you reach a 85% LVR. Everyone else ranges from 75% to 80%. I wont go into it but you should be very aware of the FX risk and top ups - ask your relationship manager about this issue.

That 5% difference is key, as 5% of aud/SGD 1.21 = 6c which implies that the aud/sgd could go to 1.15 with out a margin call from the bank.  On top of that the interest rate difference is another 7.5% so the aussie would need to drop 13% to be behind!

I’ll be waiting for another month or so to see if the currency exchange rate stabilizes given that oil could go up again and we go through another round of government induced inflation adjustments (ie increase the exchange rates again to curb inflation.) Most local bankers ( quoted in bloomberg, and local government papers) are saying that the government would prefer to use other methods of reducing local singapore inflation  as their exports will become too expensive - things they can do to reduce inflation include eg reducing government spending ( slowing development of casino ( sorry integrated resorts) , easing emplyment restriction to local reduce wage growth - ie more expats coming in creating competition and less salary demands.

IMHO This means its unlikely to see any more significant currency reduction, which would be good for us should we convert our AUD loans to SGD.

I personally am very close to swapping my loans over now. It’s a much better time now than say 3 weeks ago where the risks were huge as the aussie was at all time high. Imagine 11% drop on a $2 million home loan = $220k capital loss - eek!

If I do swap I’ll let you know - I calculate I will save over 200k in interest!

[to sunchaser]

sunchaser, they can also increase interest rates right?

[sunchaser]

rates are based on the sibor which is market driven

[risky business]

 
we have been fortunate to knock AUD$250 000 off our loans here (10%) due to switching from back and forth betweek AUD and SGD. the rate we enjoyed when in SGD was a treat too! we are looking to switch again, but i am holding out, hopeful that after the RBA announces on 2nd September i might be able to catch an attractive rate. i have been asked to top up once, and simply did so and rode it thru until is went in my favour then switched. it is a risky business, but worth the risk for us. we try to minimise the Fx risk by holding sufficient currency in both so we are less likely to be forced to choke when the pendulum swings to the extreme. i am hoping for AUD:SGD 1.18 and AUD:USD 82 cents in the next month or so. i think like many i am surprised how fast and consistent the drop has been and hope that the current upswing is short lived. i was far more comfortable at the recent level of 1.21 and 86cents...bring it on!

would love to hear some learned opinions either way. cheers

[OneForKubes]

Thanks, sunchaser. I'm thinking of making the switch to a SGD loan in the next month or so. Keep me posted on what your thoughts are.

[RBA and AUD:SGD]

 
so anyone willing to hazard a guess as to the very short term outlook on the AUD:SGD given the forthcoming announcement from RBA on Tuesday?

here is my non-financilly trained view...i have a multicurrency loan poised to flip. if the RBA surprises with no rate cut then i think i will flip straight away as a cut has already been priced in. if it cuts, then nervous nellie in me says maybe wednesday, thursday if it is a 50point cut (or greater??)...

[Still downside]

I'm due to take out a foreign loan next month, so been watching it very carefully. Down to 1.18 today after the RBA decision. Interesting that St George just posted it's 2008/2009 forecasts, they are predicting a slide to 1.152 over the next 12 months. I'm no expert, but if the RBA keeps cutting rates and the USD bounces back, I would imagine this would be likely. For me the risk is worth it; interest savings will be more than double the increase in the amount owed. 

[us too]

Yes, it's now becoming very tempting, we're doing the same...