By Tim Bentley
Alliance and Partnership Manager, OFX.
Whether you’ve seen it on the news, read it in the newspapers or witnessed its dramatic effects on live Market Rates pages, in recent months all eyes have been on one thing – the referendum on whether Britain should leave the European Union.
The debate has been rampant. Prime Minister David Cameron opposed a UK departure from the EU, and Mayor of London, Boris Johnson, openly called for it, leaving absolutely no certainty of the outcome.
As we get closer to 23 June 2016, many worry about the volatility of the British Pound with the ‘Brexit’ debate already causing serious dips.
The 12 month graph of AUD:GBP is below.
Source: OFX 2016
With so much foreign trade, investment and mobility depending on the UK’s involvement in the EU, the British Pound has become erratic. If there’s one thing markets don’t like, it’s uncertainty.
The impact on UK GDP, negative or positive, is difficult to predict. Many suspect that if the UK leaves the EU the British Pound will fall even further, and on the other hand, a return in the strength of the British Pound if the ‘stay’ vote succeeds.
How will this impact British expats living in Australia?
If you’re a British expat living in Australia, any money you receive from the UK, whether from yourself or others, may not stretch as far as it would have a year ago. Property owners may see their rental income has taken a dive in recent months, and overseas retirees will see a tightening of their pension after the currency conversion.
Currency experts predict the month before the referendum will see continued and increasing volatility for Sterling against the AUD. This leaves British expats in Australia exposed to currency risk with many worrying about the future, wondering how it will affect them and what they can do about it.
What can I do about Brexit?
With no way to know for sure what the outcomes will be, a comprehensive strategy is well worth considering to protect yourself from currency volatility.
There are a number of transfer options to consider and it’s important to choose one that best suits your current situation and transfer needs.
Spot Transfer (straight transfer)
If you want to make a (normal) transfer, whether Sterling to AUD or the other way, just go on-line or call and book the (spot) rate, transfer the funds and receive the nominated currency within 24 hours.
Forward contracts
With a lot of volatility predicted in the coming months, you might want to consider a forward contract to protect against any further depreciation in the lead up to Brexit and the months following.
Simply put, a ‘forward’ is a contract to arrange currency exchange, at a specified future point, at a rate agreed upon today.
Forward contracts:
- Enable you to secure a rate for up to 12 months. Those who secure a forward contract before the Brexit announcement may still be receiving a higher exchange rate on the Pound
- Allow you to spread the payment over 12 months or pay the entire amount on a future date
- Protect you against any potential fall in the value of the Pound – a real possibility in the run up to June
That being said, there is still the chance the Pound could rally. If this does happen, you might want to take a more flexible approach to managing your currency. You could protect some of your funds with a forward contract and leave the balance of your requirement at the mercy of fluctuating exchange rates.
This will allow you to take advantage should there be any rise in the value of the Pound between now and the referendum.
Rate Alert
If the market isn’t looking favourable right now but you anticipate an improvement within the next six months, you can set up a ‘rate alert’. You set the rate at which you wish to deal, and your foreign exchange provider will watch the market for you. If and when it reaches your desired rate, you will be alerted so you can quickly take action.
Limit orders
Another option if you feel the Pound may weaken further, which is a strong possibility, may be to use ‘limit orders.’
A limit order is where you nominate an exchange rate you wish to deal at. Once this rate is achieved, your foreign exchange provider purchases the currency transfer. This tool is particularly useful when you are unable to monitor the rates yourself or are in no particular rush to book a transaction.
Ultimately, there’s no predicting which way the Pound will go. Seeking out specialist opinion and carefully considering your currency strategy in this volatile time are the first steps to protecting your money in the run up to the June referendum.
bdhSterling and Wealthsure are not licensed to provide foreign exchange advice, however bdhSterling can put you in touch with OFX who specialise in international money transfers. Find out more at www.ofx.com.
