# Australian GICs



## Causalien (Apr 4, 2009)

My fixed income portion needs a place to live. It seems that Australian have GIC yields of 6%. Since both Canadian $ and AUX$ are both viewed as resource based currency and since we are both rising and falling with China, I don't see any currency risk in this play. 

Differentials anyone?


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## LBCfan (Jan 13, 2011)

If history, and my memory, is any guide, there have been times where the C$/A$ exchange rates were > 10% in favour of the C$.


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## ddkay (Nov 20, 2010)

You've probably already seen this, but here's a 5 year chart of the CAD/AUD showing it's near its last historical low and crossed parity twice YTD http://ca.finance.yahoo.com/q/bc?s=CADAUD=X&t=5y


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## I'm Howard (Oct 13, 2010)

I think the Aussie Dollar is overvalued, or the Loonie will go up at least 5% vs US $.


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## gibor365 (Apr 1, 2011)

Causalien said:


> My fixed income portion needs a place to live. It seems that Australian have GIC yields of 6%. Since both Canadian $ and AUX$ are both viewed as resource based currency and since we are both rising and falling with China, I don't see any currency risk in this play.
> 
> Differentials anyone?


where you gonna buy Aus GIC?


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## ddkay (Nov 20, 2010)

I have the same question since I've never deposit money in accounts outside of Canada. Which Aussie bank are you considering for term deposits? How does their deposit insurance treat foreign investors? Don't want to end up like Iceland!


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## fatcat (Nov 11, 2009)

aren't those only available to aussies ?


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## gibor365 (Apr 1, 2011)

I know that you can buy in Canada Israel Bonds include for your registered account. It's like GIC gives you interest 2.76% (2 years term) up to 4.61% (10 years) . I never bought them, just heard commercials on 680 news and checked website. 
I don't know if any fee involved, but rates are much high than local institutions offer.

BTW, if you buy australian stock on NYSE, like NZT, you gonna pay witholding tax on your dividend and it's 30% if I'm not mistaken.


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## Causalien (Apr 4, 2009)

All valid points where I might lose money. I will not comment on certain things for reasons I will not disclose.

I was a bit surprised about the currency swings. It looked almost like the usd/cdn rate. In fact, I am slightly bullish AUD due to the fact that they did not drink the 0% interest kool-aid as long as we did. Their biggest black swan event will be when Chinese RE falls too much after China introduced the 15 rules. 

AU leans more on China while Canada only leans on China for resources and RE business.

So the conclusion I get from this is that I will wait till June after the election to see if Bank of Canada have the political will to move interest rate up.


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## andrewf (Mar 1, 2010)

Australia has some of the most expensive real estate in the West. They are at risk of a bubble.


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## I'm Howard (Oct 13, 2010)

I have been to Australia and to New Zealand, once was enough.

Australia is growing due to commodity exports to Asia, and unless you believe that growth over there will stop, which I don't, the Australian economy should continue to grow.

China , increasingly, is forging ties with Russia and developing rail lines to bring in those commodities, that is the threat to Australia.

Australia has very strong union prescance.


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## atrp2biz (Sep 22, 2010)

Classic interest rate arbitrage. 

Although interest rates (GICs) may be higher, you would not be able to lock in FX rates at favourable levels. For example, if your time horizon was three years, the three foward rate on the cad.aud pairing would be 

current spot rate x [1 + i(Austrailia)/i(Canada)]^3

This would result in the Canadian Dollar being priced higher in the forward than in the spot market.

In other words, there is no way to lock in higher yields in foreign markets.


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## atrp2biz (Sep 22, 2010)

Also, to the OP's point, yes Canada and Australia are both resource-based countries (from the FX point of view), but the economies are very different. Canada is more closely tied to the western world, while Australia is more closely tied to Asia. Local economic shocks (either positive or negative) independent of the resource sector would have an impact on this currency pairing.


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## Causalien (Apr 4, 2009)

I'll know who to seek advice from next time I have currency related questions.


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## Cold_one (Mar 23, 2011)

An alternative:

Australian Bank income units; new product and supposed to pay 7.5% dividend. 

symbol AUI.UN traded on Toronto.


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## gibor365 (Apr 1, 2011)

Cold_one said:


> An alternative:
> 
> Australian Bank income units; new product and supposed to pay 7.5% dividend.
> 
> symbol AUI.UN traded on Toronto.


Where did you find info about yield? Do you know if you have to pay Australian witholding taxes on dividends?


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## ddkay (Nov 20, 2010)

I looked that one up earlier, it's in the prospectus on the fund managers website here. The 7.5% yield is based on a price of $10.00.

Direct link to the AIU prospectus.

It invests in common shares of 5 Australian banks denominated in AUD

"The common shares of the Banks are expected to be attractive long-term investments with attractive dividend yields (average of 5.76% on December 31, 2010); however, they may exhibit price volatility for the -2- foreseeable future. Therefore, an investment strategy that incorporates selling call options to capitalize on this volatility, while retaining all the upside on a significant portion of the Portfolio, should improve the risk-adjusted return to be provided by a portfolio of common shares of such Banks."

"The Manager has been advised by Australian counsel that no Australian withholding tax is imposed on dividends paid on the Portfolio Shares, to the extent such dividends are fully franked under Australian laws."

I know this thread was about term deposits so sorry to go off topic but I'm wondering how a mortgage crisis/housing correction would effect these Australian banks. I don't know what their lending practices are like but I keep seeing stories of RE problems in the Gold Coast.


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