For those that have opened AUD accounts

For those people who have opened AUD accounts can i ask what was your thinking / rationale with this?

The reason i ask is that i am Australian, living in Ireland, and i still have my Australian bank accounts. I can currently save €800 month and by the end of the year i should be saving €1500 p/month. I have a permanent job here in Ireland and no mortgage. In another 2yrs i will be eligible for residency. Long term i really don't know where i want to be - currently i like living in Ireland, the travel opportunities it gives and i like my job. One day i would like to buy a house and the thought of buying one for around 2.5 times my yearly salary is very appealing. There is no chance i would be able to do this in Australia, unless they suffer the same fate as Ireland (possible maybe)
I don't really know anything much about economics (can i even spell it correctly?!) so please excuse me! With putting your money into AUD are you expecting the end of euro and that the AUD will be worth a lot more than the new Irish currency?
The euro compared to the AUD is at almost historic lows - what if the AUD drops significantly and the € survives?
Changing your money back into €'s means you will loose even more. From visiting Australia recently and reading various forums, the AUD may be over valued (but then others say it could go to $1.15 USD) I don't feel the australian economy is as strong as they want people to believe and can see so much wastage in the system. The floods in QLD are going to have an economic impact. A friend i worked with here in Ireland returned to Australia 12 months ago and it has taken her 12months to find a permanent, full time job - she was doing several part time temporary jobs for the past 12 months.
However if i transfer my money i can get around 6.5% interest compared to 4% here. What would have to be the change in exchange rates to loose the benefit of the higher interest rate?
I really wish when the exchange rate was 1€ = $2 that i had got a loan for $20000 at the bank and transferred it to Oz then!!
So if you don't mind sharing your thoughts about why you have gone into AUD and maybe what you do in my situation, that would be great.

Thanks

Sorry for the wacky formatting half way through. Posting from my ipad and can't work out how to move the cursour up and down through the post without resorting to pressing enter and delete!

Hi Mel These are purely my thoughts on the matter ( i haven't yet finally commited to open an Oz A/C but I am strongly looking into it or alternatively buying stock in AUD $ on the Oz exchange).There is more on the web about all of this - as another poster often says here, Google is your friend! AUD is an asset backed currency, given Oz's enormous mining resources, so the economic outlook long-term is bright. Oz managed it's economy( and it's banks) well, and didn't nose-dive in the economic crisis. Unemployment is low, prospects are good. Despite the awful floods. The € has serious structural problems in it's governance (diverse economic polices/propects/economies) across member states. Not to mention serious debt problems. All of this is worrying or bodes ill for the currency. A one size fits all interest rate across the € zone has proven troublesome. Interest rates suitable to booming economies are not suitable to depressed economies for example. Ireland during the boom yrs would have benefitted from a higher rate of interest to cool down the economy. And likewise, because we are in a single currency we haven't been able to devalue and boost exports using this method ( as Iceland has been able to do). Currency unions in the past have also failed, so history also gives a warning about the future of the €. These problems aren't insurmountable, but they would require a deeper political union and harmonization between member states, and that might prove unpalatable to many. As one EU Minister commented we know what we need to do to save the currency, but we don't know how to get re-elected after doing it! On the plus side, the potential turmoil caused by the break-up of the € would be such an awful prospect (for everyone including strong economies like Germany) that it's probable that some solution will be found. I was reading recently that the founders of the Euro (France/Germany President/Chancellor) had anticipated these problems and had felt that the crisis would "drive/force" closer union between member states which after all, is the goal of the founding treaty. Namely ever closer political and economic union. In the short term there is talk ( but it is just talk as of now)of a two-tier Euro (strong and weak) which would allow "weaker" members like Ireland to effectively devalue. Nobody knows what this would mean entirely, but it might mean that overnight Irish/Greek/Spanish €'s would be worth less (probably a worst case scenario). Clearly there is huge amounts of uncertainty, and this is the primary driver of people seeking to at least look at other currencies like the AUD $. Another factor is the fact that the US $ ( the world's No 1 reserve currency ) faces challenges, as does sterling £. Both of these currencies have been involved in what's known as "quantative easing", in other words, printing more money to increase the money supply. A potential and in my view likely effect of this policy is inflation and devaluation - the more US $ or £'s in circulation the less they are worth. The ECB has declined to do this so far, but it is a potential option. This is not an exhaustive account of the reasons for looking at the AUD $, but it should give you an idea of the thinking behind it. In short, Oz has a lot of resources that the world needs,it's well-managed and this makes it a potentially attractive currency to hold. Hope this helps.

Thanks horsud for your reply.

With regards to Australian being resources driven and this supporting the economy, what do you think of China, given that they are one of the main buyers of Australian resources? Do you think they will continue to boom, or that a slow down will have to happen? From what I have read (and I know you shouldn't believe everything you read!) China is building empty cities, building bridges and tearing them down again etc, all to keep growing. Can they continue to do this in the long term? If they can't then this has to have a negative impact on the Australian economy. Also the goverment is introducing a 30% mining tax (was to be 40%), so who knows what effect this will have.

Australia may have managed it's banks well, and while there appears to be little in the way of sub-prime loans, I don't know how restrained the banks were in lending money. I consulted a mortgage broker in Feb last year (in Australia) and was allowed to borrow up to 60% of my take home pay. This is hardly what I would call good lending practices. During 2009 & first half of 2010 first home owners were able to take advantage of up to $32000 (in Victoria at least for building new houses) of grants during 2009 & 2010 ($7000 grant, $11,000 bonus & $ 14,000 boost) and many of them had no other deposit. If the banks were lending to these FHO at the rate they were willing to lend to me and they were taken up then a lot of FHO could be in trouble as interest rates rise (which was predicted for the next 12months...I don't know what effect the floods will have). Bank interest rates are currently around 7.8% so potentially a lot of people who purchased in 2009 because of the grant could be in trouble if they continue to increase.

Consumer confidence appears to be weak and big retailers are screaming out about the fact that $1000 of goods can be purchased online from overseas stores GST free.

However unemployement has dropped again to around 5% so I don't know really!

And then on the other hand is the Euro and everything that you have mentioned. It's truly enough to do in many heads a lot brighter than mine (and I'm sure it has!)

China's economy is primarily export led ( tho this is rapidly changing with increased affluence). As long as their is a market for their goods they will need raw materials from places like Oz. Costs in China are still low, so it's likely they will continue to be competitive, But this also will change as the economy matures. They are also expanding into Africa to avail of resources there. L.T. there may also be political issues in China as an increasingly affluent society MAY seek matching political clout and the political system mcould come under pressure.

Nonetheless certain resources are finite ( copper, uranium etc) so it is likely there will always be a demand for them. The L.T. trend for countries like Oz that own them and companies that mine them is therefore good in my opinion. This of course can change if replacements/alternatives/new resources can be found. (i.e. oil sand banks in Canada and the tech. to extract them).

I'm not suitably qualified to comment on Oz housing market, but internal issues like this can be managed by interest rate policies. As you mentioned, interest rates seem high at 7.8% (compared to ECB rate of 1%) and perhaps this is a sign that the Oz Central Bank is dampening down demand for property and tightening fiscal policy. Given what you say, this seems the right thing to do. The AUD $ value is a function of demand for Oz products/services ( amongst a whole heap of other things!). Overall, it seems like the prospects for Oz's economy seem good relative to other developed economies, and that's what has me looking at it as a place and a currency to invest in. But, economics is a poor science imo, and opinions vary widely. Something can come out of left-field and throw all predictions to the wind. My recommendation is to do as much research as you can and realise that you are still taking a bit of a punt. Nobody knows everything! Personally I deal with this by risk-spreading accross a number of companies, currencies and sectors. At least then if one goes belly-up you don't lose your shirt.

Thanks horsud for your thoughts & input. I will definitely take it all onboard and keep reading!