USD/AUD hedge

[stacks]

Hi all, first time poster here. Very rookie investor who has just found this forum and I am after some people opinions.

I believe the value of the USD is a downward spiral compared to the AUD. I am currently on a fixed wage that is paid to me here in Australia but the amount is set in USD. I am looking into ways to hedge against my wage losses should the USD devalue. Any thoughts welcome

Cheers

 

[financialdonk]

Re: USD AUD hedge

Welcome to the forum stacks,

If this is your line of thought then step 1 is too make sure that you are converting your pay from USD to AUD as soon as your salary is received fortnightly/monthly. This may already be the case.

The next step would be to negotiate with your employer to unhinge your salary from being pegged to the USD. Given that it is has been hovering around 1:1 the last few months it provides an opportune time to make the case as neither side would have 'won out' in the last 3 months.

Apart from that you are hamstrung to an extent because you are getting paid a regular salary that you believe to be depreciating against the currency that you wish to convert to in order to live. Any commodity based investments that you could make as a hedge (against USD) would be aligned with the rise of the AUD anyhow. The two are generally seen as linked although commodities may/may not outpace the rise of AUD you foresee.

Precious metals may act as a third alternative/hedge against both the USD and AUD. If the USD returns to strength PM prices denominated in AUD would rise and may offset the decrease in USD terms and vice versa (I haven't explained that well you may want to look into this avenue further yourself).

Finding another employer that uses an Australian based payroll is an extreme suggestion but not as extreme if you believe you are facing a 15-40% pay cut in real terms in the future.

Lastly be aware of the ability for the USD to act as a 'flight to safety' in times of crisis. Despite how poorly the USD is perceived at the minute situations can change rapidly. Even if the dollar were to crumble there may be one last hoorah if the Euro/EU falter or China stumbles and commodity prices collapse.

It is a fascinating and diverse question and one which no one will be able to answer you with certainty. All you can do is to investigate yourself as thoroughly as possible and try to make the most educated decision you can.

Goodluck!

 

[stacks]

Re: USD AUD hedge

Welcome to the forum stacks,

If this is your line of thought then step 1 is too make sure that you are converting your pay from USD to AUD as soon as your salary is received fortnightly/monthly. This may already be the case.

The next step would be to negotiate with your employer to unhinge your salary from being pegged to the USD. Given that it is has been hovering around 1:1 the last few months it provides an opportune time to make the case as neither side would have 'won out' in the last 3 months.

Apart from that you are hamstrung to an extent because you are getting paid a regular salary that you believe to be depreciating against the currency that you wish to convert to in order to live. Any commodity based investments that you could make as a hedge (against USD) would be aligned with the rise of the AUD anyhow. The two are generally seen as linked although commodities may/may not outpace the rise of AUD you foresee.

Precious metals may act as a third alternative/hedge against both the USD and AUD. If the USD returns to strength PM prices denominated in AUD would rise and may offset the decrease in USD terms and vice versa (I haven't explained that well you may want to look into this avenue further yourself).

Finding another employer that uses an Australian based payroll is an extreme suggestion but not as extreme if you believe you are facing a 15-40% pay cut in real terms in the future.

Lastly be aware of the ability for the USD to act as a 'flight to safety' in times of crisis. Despite how poorly the USD is perceived at the minute situations can change rapidly. Even if the dollar were to crumble there may be one last hoorah if the Euro/EU falter or China stumbles and commodity prices collapse.

It is a fascinating and diverse question and one which no one will be able to answer you with certainty. All you can do is to investigate yourself as thoroughly as possible and try to make the most educated decision you can.

Goodluck!

Thanks for the welcome and reply donk.

I do transfer funds immediately into AUD so that is covered. My employer is based in and does all business in the US so no chance of changing payment currency.

I have some small investments indirectly in commodities (mining and mining services companies) and energy, which I am happy with as you suggested. I havent had a detailed look into precious metals as yet. The idea definitely interests just not real sure how the change in USD will affect PM prices in AUD and what direct impact that would have on offsetting the loss in USD value, need to do some more research.

Definitely not keen to change employers at this stage, its a great job, but if im forced to take a 20% pay cut through no fault of my own, then im out. Mind you if the USD falls 20% in value things all round would be very interesting i think.

A flight to safety and resulting USD jump (maybe?? is it still that safe??) would be very beneficial personally but not something I want to wish too hard for.

I am really after a direct hedge (if possible) - where a 10% drop in in USD/AUD gives me a 10% profit. But I dont want to have to invest the equivalent of my wage every week to achieve this. Maybe Im looking for a solid rainbow, but I dont know enough at the moment to know if or how this is possible, still working on it.

All help is very appreciated


Cheers

 

[prawn_86]

Re: USD AUD hedge

If your wage is the same each month you could take out a series of monthly sell-side forward contracts and then fulfill each contract with your pay.

This means that you would have your incoming funds fixed at X rate per month, and if the rates continue to rise you could then sell that forward back at a profit (if you didnt want to convert your wages for whatever reason).

Downside of this is that you are locked in to contracts and that you can generally only book up to a year in advance

 

[stacks]

Re: USD AUD hedge

Thanks Prawn, that is the kind of approach I am looking for. My wage is constant every month and one year in to the future is fine.

Please forgive my ignorance I have no experience in FX trading or knowledge of forward contracts so this is a steep learning curve.

Would it be possible to pick your brain a little to better understand this process.

From what little I know this is how I understand it works (assume my wage is USD$1000/month)- I set up a contract (with someone -FX trader??) to sell 1000USD for 10000AUD and i set this up to happen on 30th of every month for the next year. When i get paid in USD on 30th April, I fulfill that contract, transfer the USD amount and get 1000AUD in return. Please correct any of this is incorrect.

Questions (basic i know, my apologies)
1. Is it possible to purchase a contract to sell (eg) 1000USD for 1000AUD in 12 months time??

2. Who do i set these contracts up with?
3. Is there significant fees for this? Will any benefit be eaten up by fees?
4. What forward rates can I get? Assume I would obtain this info from (1)
5. What happens if the USD increases in value? I assume contract proceeds and I dont get the benefit of increasing USD value. Fine with that, could look at doing this with 50% of wage etc.
6. What if I miss the contract date? E.g if my pay is late

Thanks again for any assistance

Cheers

 

[TulipFX]

Re: USD AUD hedge

www.ozforex.com.au

Give these guys a call. They are very helpful and who I use to convert my money. They offer all those kinds of services at a very reasonable rate and spread.

 

[Bill M]

Re: USD AUD hedge

Hi stacks, I'm not into forex much but a new ETF has come to the market. It is a USD/AUD ETF. The ticker code is simply USD. The company that issues it is Betashares at this link: http://www.betashares.com.au/products/name/u-s-dollar-etf/#each-keyFacts

I have seen the AUD at 49c to the USD in the past. The AUD can change direction at anytime and it can be quick and severe. Look at what happened in in 2008 to Jan 2009, it crashed from 98c to 65c in a few Months. I myself am looking at taking a bet the other way, that is a correction of the AUD.

http://finance.yahoo.com/q/bc?s=AUDUSD=X&t=5y&l=on&z=m&q=l&c=
Good luck anyway.

 

[stacks]

Re: USD AUD hedge

Thanks for the links guys, will look into it.

Yeah Bill, which way the currency goes is a a separate issue for me. And a tough one to call with US's money printing policies, alleged? debt ceilings, QE3? etc. And FX is definitely not my strong point at this stage.

So for me this wage is my sole source of income and I want this amount to be consistent and stable. After which i can invest in things i am more comfortable with and (hopefully) know more about.

Really good to learn how to make these moves so I can react to future developments as well. So thanks again peoples

 

[financialdonk]

Re: USD AUD hedge

I have seen the AUD at 49c to the USD in the past. The AUD can change direction at anytime and it can be quick and severe. Look at what happened in in 2008 to Jan 2009, it crashed from 98c to 65c in a few Months. I myself am looking at taking a bet the other way, that is a correction of the AUD.

http://finance.yahoo.com/q/bc?s=AUDUSD=X&t=5y&l=on&z=m&q=l&c=
Good luck anyway.

I'm thinking the AUD has room to decline heavily too Bill.

 

[TulipFX]

Re: USD AUD hedge

I'm thinking the AUD has room to decline heavily too Bill.

I agree. My trades are short term, but my withdrawn trading profits I am holding in USD at the moment.

 

[prawn_86]

Re: USD AUD hedge

Stacks,

OzForex are a competitor to the company i work for, but they do tend to do a lot more private accounts to us.

I'll answer your questions when im less hungover tomorrow hopefully