Now they keep charging the $12k to my credit card every month, should be paid off in another few years. I'm happy to take out as many of these kinds of loans as the banks will give me, since I simply move the money overseas to Australia, where Aussie dollar is low now so favourable fx rates, then simply dump the cash on my Aussie mortgage and saves me more than the 1.89% it costs me in Hong Kong.
Ouch. That's will have blown up any interest rate arbitrage strategies.Original Post Deleted
err, well if you look at a 5 year graph, in Jan 2016 the USD/AUD was 0.68 and today is 0.67 basically the same. So I understand your argument that you can lose a lot in fx, but you picked kind of an extreme point to make an exagerated statement.Original Post Deleted
I did start transferring a lot of HKD to AUD when it was below 0.72, yeah lost some fx on those transfers at today's rates, but actually I did a massive HK$4m transfer to AUD in August last year when I refinanced my HK property and that was 0.67 which is what it is today so more or less for me I havent gained or lost much on the fx side at this point. But I do think the AUD is cheap right now.
I also feel quite fortunate when I left HK a few months ago, my company converted my HKD salary into an AUD salary at the exchange rate back in October last year which also was around 0.67 and I feel I got quite a good deal out of it, secured a full time employment in Aus and locked in a salary that is as you say 15% higher than it could have been if I had negotiated at a less favourable time.
Borrowing in 2010 - AUD a lot lower now
Borrowing in 2011 - AUD a lot lower now
Borrowing in 2012 - AUD a lot lower now
Borrowing in 2013 - AUD a lot lower now
Borrowing in 2014 - AUD a lot lower now
Borrowing in 2015 - AUD a little lower now
Borrowing in 2016 - AUD a bit lower now
Borrowing in 2017 - AUD a lot lower now
Borrowing in 2018 - AUD a bit lower now
Borrowing in 2019 - AUD a bit lower now
If we are cherry picking, your example of 2015 is the only year anyone implementing this strategy wouldn't be sitting on decent forex losses now. The interest rate differentials cushion some of the blow, but not all of it. Clearly this is far from a riskless strategy..
No worries guys, I do get your point. I guess my gamble is that the AUD at around the high 60's or low 70's is a low point, and I have expectations of it rising again at some point. Only time will tell if this prediction is accurate
the outcome of this trade will definitely have multiple times more to do with fx movement than any (relatively inconsequential) interest rate differential. i know bdw is fully aware of this gamble but I think all the pushback on it is well warranted lest any less financially savvy readers get the idea this is a sensible thing to do. itâ€™s taking a punt on AUD no more no less. it may certainly be profitable but itâ€™ll have little to do with interest rates.
He might also have covered some of the FX loss with capital appreciation on the properties he's using the leverage on? I think Auz was boomtown until recently?
Original Post Deleted
Disclaimer: I know less than nothing on F/X
Question 1: Is the risk higher or lower when the person is borrowing in HKD then paying off in AUD AND AND the person's salary / income continues to be in HKD?
So has BDW's risk gone up as now his salary is in AUD?
Question 2: Is the risk of this currency pair HKD / AUD less than another currency pair because the HKD is pegged to the US dollar. e.g. does a peg to USD lessen volatility versus a pair that has no peg like say EURO to something or JPY to something
I used BDW as an example for the question. Meaning if a person borrows in HKD to pay off AUD and what then is the change in risk factor if that person's salary switches from HKD to AUD
you are absolutely correct that I would not want to ask BDW to put out his specific circumstance