The Australian Dollar and What You Need To Know

 

The Australian Dollar A$ and What You Need To Know.

 

The Australian dollar (A$) is the fifth most traded currency in the World and is known as a commodity currency. This is because Australia is one of the world’s most natural-resource rich countries as it has large holdings of gold, iron, coal and aluminium. There is a strong correlation between the price of gold and the price of the currency, as the exchange rate closely follows supply and demand as money exchanges hands between miner and manufacturer.

The growth of the Australian economy has been powered by demand for their commodities especially from countries such as China. Over the last few years, along with added pressure of the global crisis, growth in global economies have slowed, driving the demand for these commodities as well as their prices down.

 

With the combination in growth, and a currency widely regarded as overvalued, the RBA (Reserve Bank of Australia) have gradually reduced their interest rate from 4.75% in October 2011 to 2.5% now seen. The lower borrowing costs have eased the burden on businesses and consumers.

 

This has had an immense effect on the Australian dollar over the last year alone. Seeing the A$ lose 17% against the US dollar, 30% against Sterling and almost 38% against the euro.

 

The chart on the left shows the rate of Sterling against the A$. You can clearly see the upward trend against the Australian dollar ever since it hit lows in March 2013. This is not only due to the changes in the Australian economy but also compounded by much stronger and faster growth from the British economy.

 

Australia has long been a holiday destination for many mainly due to the warm weather and sandy beaches. With a weaker Australian dollar, it has become an even more attractive tourist destination. Another example that shows the weakening of the currency is a property selling for A$ 500,000 will be £75,000 cheaper compared with last March for a British property buyer.

 

Anyone who is looking at buying a property in Australia, or may have a requirement to exchange funds into A$ for any purpose should seriously consider speaking to an independent currency broker. Even if the requirement is simply to repatriate salary, or cover costs of living abroad an independent broker should always be more competitive than the high street banks.

 

Also, by fixing a favourable rate in a volatile market, it is possible to lock in the final cost and avoid any risk in the event that the foreign currency starts to appreciate in value.

 

World of Expats is now working together with Cornhill FX, a bespoke London based brokerage, to help individuals with this process.

To contact a Currency Consultant, please call 0207 710 9614 or email the World of Expats contact Jamie Hughes on jamieh@cornhillfx.com

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