The Australian dollar (AUD) hit a 2-month high against the US dollar and is trending higher against the British Pound and Euro.
Heading Overseas Soon?
Australians travelling overseas can now benefit from a higher Australia dollar. As the AUD moves up, you will receive more in foreign currency for the same amount of Australian dollars.
For example, if you are going the UK and taking $5000 Aussie dollars, you’ll receive 100 more British pounds than if you converted the money 2 months ago.
Why the Australian dollar has gone up
There are three main reasons why the dollar has improved in the last couple of months:
1. It’s not us, its them
When the AUD exchange rate goes up, sometimes it’s because the other currency is becoming weaker, contrary to our currency getting stronger. This is certainly the case with the AUD/USD and AUD/GBP exchange rate.
Recently, political instability has cast shadows over the economy in the US and the UK. As a result, their currency value has gone down, helping the AUD out-perform.
2. Australian interest rates
Interest rates have always had a big impact on the direction of the currency markets.
In the last few years, interest rates in Australia have been falling. This has been one of the main reasons our currency has also fallen (remember when the Australian dollar was above the US dollar).
Now, it seems that the next interest rate movement will be up instead of down. This expectation of higher interest rates actually helps strengthen the Australian dollar.
3. The sky isn’t falling down
While the Australian economy isn’t flying, you might be excused for thinking it was about to head into a massive recession – given the wave of bad news in 2017.
In the last couple of months, this has started to change.
Recent economic data has suggested that the economy is more robust than what had been previously assumed. Strong economic data tend to move exchange rates higher because a strong economy usually leads to higher interest rates.