Travellers rush to exchange their Australian currency

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This was published 9 years ago

Travellers rush to exchange their Australian currency

The falling Australian dollar has triggered a rush to buy foreign currency before the Christmas and January holiday season.

By John Collett

It is a question on the minds of those heading overseas during the Christmas and January break.

Should they exchange their Australian dollars now for foreign currency or hold off in the hope the Australian dollar recovers before they depart.

exchange rates

exchange ratesCredit: Bloomberg

For many, however, the risk of waiting is higher. The falling Australian dollar has triggered a rush to buy foreign currency before the Christmas and January holiday season.

Usually euros are bought before the northern hemisphere summer holiday season in June. Demand for US dollars peaks in the run-up to Christmas.

"We would usually see a drop-off in travel card activity in July-September, as it is between the key June and January travel seasons," says Margaret de Polignac, head of products at OzForex, a currency exchange service that also offers a prepaid travel card.

"But this year we've experienced a significant rise [between July – September], both in applications for new travel cards as well as people loading money onto their travel card," she says.

The Australian dollar has lost about 8 per cent against the US dollar in the past 12 months, and about 20 per cent since it reached record levels against the greenback in July 2011.

The Australian dollar has also by about the same amount since its peaks against the euro and the British pound. "We've also seen a huge spike in people buying Japanese yen, three times higher than usual, possibly because October is considered an ideal month for travel due to Japan's lovely autumn weather," de Polignac says.

Travel cards, of which there are several providers, including those of the big banks, can be loaded with up to 10 currencies. They can be a convenient way of locking in the exchange rate now, but there are big differences in the costs of the cards.

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Credit cards apply the exchange rate at the time the credit card is used. Trying to forecast currency exchange rates accurately is notoriously tricky.

Analysts generally expect the Australian dollar to move lower against the greenback and pound. While there are many variables affecting exchange rate, one of the bigger factors is relative interest rates.

Generally, if a country has interest rates that are higher than other countries', the currency of that country is supported. With inflation in Australia easily within the Reserve Bank's 2 to 3 per cent target range and economic growth modest, the case for a rate rise looks weak.

The Australian cash rate is likely to remain at its 50-year low of 2.5 per cent for longer, says Shane Oliver, the chief economist at AMP Capital Investors. Eventually, the US Federal Reserve will start to lift interest rates.

He thinks the Australian dollar will probably stay pretty well where it is against the US dollar at about 88 US¢ or only a little lower, for the rest of the year.

He says the Australian dollar could see another leg down to about US 80¢ towards the middle of next year as the US Federal Reserve gets closer to raising rates.

Dr Oliver is of the same opinion regarding the pound; with it being a "toss-up" as to whether the US Federal Reserve or the Bank of England will be the first to start raising rates.

The Australian dollar versus pound exchange rate will probably also hold fairly steady until the end of the year, he says. The Australian dollar will probably fall against the pound around the middle of next year, but not to the same extent as the fall against the US dollar, Dr Oliver says.

The Australian dollar is likely to remain steady against the euro and the yen, however, as both economies are still weak, he says.

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