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The falling AUD and what it means for Aussie travellers who are buying and selling currency

September 6, 2018 Financial No Comments Email Email

The Australian dollar has fallen overnight to its lowest level in two years as global markets and investors react to challenges facing the Australian economy.

Foreign currency specialists Travel Money Oz said with the Australian dollar expected to continue falling in the immediate future they urge Australian travellers to assess their travel spending requirements and consider bringing forward the purchase of their foreign currency needs.

“From a Travel Money Oz perspective, we’re very used to seeing rates change rapidly, and I think it’s something our customers are becoming more aware of as it affects more than just physical foreign cash, but the overall cost of a holiday and airfare – and other goods that impact our country,” said General Manager for the Travel Money Group, Kelly Spencer.

An analysis of the declining value of the Australian dollar against the US dollar revealed:

  • Around six months ago, on the 14th March a customer spending $2000 AUD on USD would have received around $1,532.2 USD
  • Whereas three months ago a customer spending the same amount would have received around $1,486.8 USD
  • Today a customer would receive around $1,402.4 USD.

Based on Travel Money Oz online rates.

What does this mean for Aussie Travellers?

Sorry to say, but it’s more than likely that you’re not going to get the most bang for your buck when exchanging AUD for the majority of international currencies, especially USD.

“The AUD is expected to drop further, so if you are heading overseas shortly it’s worth considering grabbing your cash sooner rather than later to ensure you don’t forgo any more spending money than necessary,” Kelly Spencer said.

“Travel Money Oz also offers Rate Guard protection on certain foreign cash purchases, meaning if the rate improves within 14 days of you making your foreign currency purchase in store, we will credit you the difference,” she said.

“If you have just returned from your trip overseas and have some leftover cash, you can cushion those post-holiday blues with some Aussie spending money.  The low Aussie dollar means you will get more when selling it back to us in exchange for your foreign currency.”

Why is the AUD dropping so much?

This can be attributed to a lower demand for the AUD as a result of decreased investor confidence in the economy. This can be broken down to some key international and domestic factors:

International:

Global trade: Surprise surprise, Donald Trump is in the thick of heavy trade negotiations that lean towards adding tariffs to Chinese goods. Imposing tariffs on China not only decreases the demand for their goods, but also the Aussie resources required to create them.

Increasing US interest rates: As the US economy improves, the need for low interest rates become less apparent. Higher interest rates in the States means investors move their funds to the USA to take advantage of an increased return on their capital.

Emerging market weakness: The last 6 months has seen massive falls in other country’s exchange rates. South Africa, Argentina, Turkey and Brazil have witnessed hefty depreciation in their currency.  This has increased risk aversion for investors which, in this case, has weakened the AUD.

All of these factors have resulted in decreased demand for the Aussie dollar.

Lower demand = downward pressure on the AUD value.

Domestic:

Large household debt and falling house prices: While first home buyers may rejoice at falling house prices in Sydney and Melbourne, it has impacted the economy in a number of ways.

Consumer sentiment and perception of wealth falls alongside house prices. people stop spending as much when their house price doesn’t rise. This was confirmed this week in increasingly low retail sales numbers.

Interest rate expectations: The RBA has put a hold on rates since August 2016. For 18 months or so the market was expecting the next move in rates to be an increase, however low wage growth and low inflation has led some economists to speculate that there may be another drop in rates. This, coupled with the USA’s rate increases, leads investors to move their capital elsewhere seeking a higher return.

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