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High currency = Low interest rate!! what does it mean for the next 6 month?

Posted Thursday, 21 October 2010 at 14:47 by Michael Chan
Tagged: home loans | interest rates | house prices | Investors | Home Buyer | Wealth Creation | property investing
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High currency = Low interest rate

Two weeks ago RBA announced that the official cash rate would remain the same at 4.5% - that's great for home owners andinvestors with mortgage. BUT what does it really mean in the long run? Is it really good for our economy and most importantly when will interest rate go up?
Prior to RBA decision the data that came out from the Bureau of statistics and trade was that unemployment was only 5.2%, Company and retail growth was steady, consumers spending was relativity high and debt per person was 11% HIGHER!. So the question is why didn't the interest rate go up? is there a underling reason we should be looking out for...and the answer is YES!
One of many reason why the RBA official cash rate remained at 4.5% is because our currency was increasing by a rate of 1.02%  per week for the last 9 weeks a rate never seen since 1992 ( when currency was $0.95 and interest rate cash rate was 4.1%). The high currency means export is low and imports is higher...which in turns means low inflation (current inflation rate is 3.1%), lower the inflation lower the interest rate. 
High currency and low interest rate may sound good for the everyday family, especially those planning to travel overseas over Christmas. Here is the bad news; these good times won’t last long! the currency is set to fall to $0.87 by early Feb 2011, which means interest rate would most likely jump by 50-75 base points by then. 
So as a departing thought i say add extra on top of your minimum monthly mortgage repayments, personal loan, car loan, and credit card NOW since the times are pretty positive. By the time it comes to Feb 2011 you would have been well ahead of your repayments and would have made up for the difference in interest if the rate does go up. 
{-------- Tip: if you put aside an extra $15 a week into your mortgage repayment, and you had a standard $500,000 mortgage; you would save $82,638 over a 30 years term. That's equivalent to earning $154,465 before tax ( assuming tax rate of 46.5%) ***
** interest rate of 9% ---------} 
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