China syndrome and its effects on Aussie migrants

A keen awareness of market changes could see you
receive a much better exchange rate than
you thought possible.

Anyone with a keen eye on China when considering the Australian currency exchange is one step ahead, but market time differences can still be a killer. Halo Financial Director David Johnson explains why.   

When you think of all the things that might directly affect your migration plans to Australia, decreased investment in Chinese building projects probably isn’t an issue that springs immediately to mind. But perhaps it should.

It may seem odd to think that the ups and down of the Chinese construction industry will have a very direct correlation with how wealthy you are when you arrive in Australia but there is no getting away from the facts.

The link is perhaps less tenuous than you may imagine. The fact is that China is a major importer of Australian mined and quarried materials. They import copper, bauxite (the base element of aluminium), cement and iron ore to fuel the massive building program they are still undertaking and, as far as Australia is concerned, that is a good thing. It keeps demand up, boosts job prospects in the Australian mining industry and swells the accounts of the Australian taxman.

However, China is starting to slow the pace of new construction projects because its economy is hugely out of step with the rest of the global economy and the 11 per cent economic growth in China is, by any measure, an unsustainable pace. That slowdown means they need less of the products Australia provides and that in turn means Aussie mining companies are not as flat out and not as profitable as they once were.

This is happening, by the way, just at a time when the miners are being hit with a new tax regime which will relieve them of 30 per cent of their profits. The taxman might have missed the boat on this one and Kevin Rudd may have lost his job as Australian Prime Minister for no purpose. 

Unlikely influences on the Australian currency market 

The fact that China is a major influence on the Australian economy is what Steven Fry might call, "Quite Interesting" but it does serve to remind all of us that the currency market, to which you will be vulnerable until you have converted all your Sterling into Aussie Dollars, can move for some of the most unlikely reasons.

Keeping tabs on the Sterling – Aussie Dollar exchange rate is something you can do in a minor way through checking websites, having an applet on your phone or watching the news but, assuming you have a life to live, it isn’t something to which you will want to devote all your waking hours. And if you have no life and you do watch the exchange rates from dawn until dusk in the UK, you will still miss some of the action because the currency market trades every second of the 24 hour day from Monday morning in Asia to Friday night in America. Australia is open for business while the UK is away from its desk so the action you will miss will tend to be the busy period for the Australian Dollar.   

How to get the most out of your currency exchange

There are three possible solutions; Option 1 is to consume vast quantities of sugary drinks, caffeine and sweets to ensure you do not have to sleep and can therefore watch the markets 24 hours a day. This is not recommended by me or your doctor.

Option 2 is to ignore the market and just write off any losses that you may incur on exchange rate fluctuation as unavoidable. And option 3 is to use the best tool for the job; in fact the tool designed for precisely this job, the market order. This is a method of setting a target exchange rate and placing a firm order in the 24 hour market through a specialist broker like Halo Financial, to ensure that as long as that exchange rate is available anywhere in the world at any time of day, you will get your order filled.

So imagine the scenario where, at 04.30 GMT, the Chinese government announces it is cutting all new construction projects, traders see this as a threat to the Australian economy, the Australian Dollar weakens, your order placed previously at AU$1.68 to the Pound (within the expected range of trade), is triggered. Subsequently, the news report turns out to be a little overstated; China isn’t cancelling all projects, just those for shopping malls. Therefore the threat to Australia is not as stark as previously thought and by 06.30 GMT, the exchange rate is 5 cents lower. You receive a phone call at 08.30 GMT to confirm that you have bought your Australian Dollars at an exchange rate that you didn’t even know was possible.

It may sound like little more than a dream scenario but this kind of volatility happens more often than you might think, in almost all circumstances, the use of well-placed market orders is the very best way to make the most of currency transactions where the currency of a country in a different time zone is involved.

It is obvious which option I would favour and which I know is an excellent solution to an age old problem.

Anyone planning to go for option 1, please consult your doctor first and perhaps ask for a referral to a psychiatrist while you are at it.

- Halo Financial is a leading specialist provider of commercial foreign exchange services for both international business and private individuals who require foreign currency and need expert assistance in successfully managing their foreign exchange exposures. They are a partner of Australian Visa Bureau, an independent company specialising in helping applicants emigrate to Australia.