Great Escape: Travel Bonus As Aussie Dollar Cracks US80c

A resurgent Aussie dollar means travellers on a budget should consider locking in the favourable exchange rate before they travel.

By Bernard O’Riordan

Australian travellers headed overseas look set to get more bang for their buck with the Australian dollar breaking through the US80c barrier.

The Aussie dollar has been driven up by a weaker US dollar and stronger commodity prices, amid higher Chinese demand for Australian iron ore and coal. After trading just shy of US80c in recent days, the local currency marched to a five-month high of US80.2c overnight.

Screenshot at Jan 18 06-23-26
6am 18/01/18                  Source: xe.com

It’s good news for Australians headed overseas, particularly to the US and countries like Hong Kong where the currency is pegged to the US dollar, because it gives them greater purchasing power.

Whether it’s paying for accommodation, buying a train ticket, dining out or booking a day-trip, the rally in the Aussie dollar makes it up to 10 per cent cheaper than it was a year or two ago.

Depending on which foreign currency (FX) expert you ask, the Australian dollar might sink to US65c or surge to US88c by the end of the year.

While currency exchange rates are notoriously fickle and tricky to forecast with any real accuracy, ANZ  predicts the Aussie dollar will hit 83c this year. The Commonwealth Bank predicts it could nudge US88c by December, while investment bank UBS expects the currency to be trading around US84c by year’s end.

Paul Bloxham, HSBC’s chief economist for Australia and New Zealand, suggests the Aussie dollar could reach US90c this year.

Screenshot at Jan 17 10-35-34
                                  Aussie dollar’s five-year trend                                                          Source: http://www.xe.com

It should also be noted that many other banks (including Westpac and Macquarie Bank) are less optimistic about the Aussie dollar’s fortunes, with some expecting a series of official interest rate rises in the US to potentially take a toll on the Aussie dollar.

Still, the Aussie dollar has been unpredictable and has already risen more than 6 per cent against the US dollar since December. It last traded at US80c in September 2017.

The next previous high was US81c in May 2015, but you have to go back to 2013 to find it charting above US90c. The currency reached $US1.00 on October 15, 2010, the first time it has hit parity with the greenback since it was floated.

It is not just the US dollar against which the Australian dollar has improved.

The Australian currency is close to parity with the Canadian dollar, has marched to almost $1.10 against the New Zealand currency and has held its own against the euro, the pound and the yen in recent weeks.

That’s why now is the time for Aussie travellers to take advantage of the local currency’s strength by locking travel money away at a favourable exchange rate.

How To Get More Bang For Your Buck

  • Lock it in. Foreign exchange markets are unpredictable, but your trip doesn’t have to be. If you think this is as good as it might get for the Aussie dollar, buy your foreign currency now and stash it away until you’re ready to travel. The good news is you can’t spend it before you travel anyway;Screenshot at Jan 17 10-47-30
  • Travel cards can be a good option if you want to store foreign currency at a locked-in exchange rate. A prepaid travel money card allows you to load multiple currencies on the card while avoiding currency conversion fees. It’s especially good if you’re on a budget or unsure about what might happen with the currency in the weeks or months before you travel;Screenshot at Jan 17 10-47-30
  • Pre-pay for as much as possible.Take advantage of the strengthening dollar and pre-pay for hotels, transfers and tours. Most hotel booking sites will also let you cancel your booking very close to the travel date, so if the dollar improves even more you can cancel and rebook at a better rate;Screenshot at Jan 17 10-47-30
  • Pay in the local currency – always. When making an electronic payment overseas (like with a standard bank issued credit or debit card) you will often be asked if you want to pay in the local currency or in Australian dollars. Always choose local currency. If you choose Aussie dollars you are paying the Dynamic Currency Conversion rate, which is weighted in favour of the merchant by up to 4 per cent. This fee can completely wipe out the benefits you could be getting from a strong Australian dollar;Screenshot at Jan 17 10-47-30
  • Choose your destination carefully. The Aussie dollar is stronger overall, but that doesn’t necessarily mean that it has improved against every currency. You’ll still need to do your research to ensure you’re getting value for money;
Foreign Exchange information is this article was correct at time of publication on January 17, 2018. FX data was sourced from http://www.xe.com. It’s important you do your own research and ensure exchange rates are up to date before purchasing foreign currencies.
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