We may only just be recovering from our Christmas debt; however, many of us are already counting down the months until our next getaway.
While booking flights, locking in accommodation and researching tourist attractions are often top priorities in the lead-up to a big trip, it’s easy to forget to organise foreign currency – and right now might be the best time to buy if you’re heading overseas this year.
Travelling with the $A in 2018
An international trip might be more expensive in 2018 than previous years, with the Australian dollar predicted not to perform as well as other major currencies – including the British pound, the euro and the yen.
With the Australian dollar potentially not going as far in Europe over the next 12 months, it may be best to source cheaper travel destinations.
From the dense rainforests and golden sands of South-East Asia to even more exotic locations like Africa or Central and South America, travelling to countries with developing economies might help your dollar go further for longer.
Heading to Europe?
This year the euro will be one of the better-performing (if not the best) major currency.
The European Central Bank is expected to end its bond buying program in the fourth quarter, a clear sign that economic conditions in Europe have improved over the past 18 to 24 months.
Although the ECB is unlikely to raise interest rates in 2018, even a mention of a rate rise could lead to strong growth in the euro.
Aussies travelling to Europe should look at exchanging their dollars now before the euro potentially strengthens further.
What’s next for the pound?
With Brexit still up in the air, the British pound will be volatile.
While the UK economy is showing signs of growth, it is the fear of the unknown that will cause the pound to fluctuate throughout the year.
With the AUD/GBP currently hovering around the 56 cent mark and genuine uncertainty surrounding rate movements, people travelling to the UK – especially for longer trips – should be watchful of movements with the AUD/GBP exchange rate in the months leading up to their trip.
How about the US?
Unfortunately, the $A has taken a slide against its US counterpart in recent weeks. With the US expecting an interest rate rise in March – and another two or three in 2018 – the $A is likely to bounce between US83c and US71c.
To add to the volatility, recent Australian Bureau of Statistics data shows household debt-to- income ratios are at an all-time high, sitting just short of the 200%. This is one factor putting pressure on the Reserve Bank to hold off on an interest rate rise until the first quarter of 2019.
Aussies planning a trip to the US this year need to be especially mindful of the volatility associated with the AUD/USD exchange rate.
With a wide range expected, it would be wise to consider fixing the USD around the 77 cent mark, with a currency product such as a forward contract, which allows you to lock in today’s rate for up to two years.
Maybe somewhere closer to home, like Japan?
The Land of the Rising Sun is showing signs that it has awoken from a long economic slumber, with its best inflation figures since 2015 (a 34-month high).
Unfortunately, the positive economic news has caused a large spike in the yen, and the $A has slipped to six-month lows recently. A visit to the Cherry Blossom Festival may need to wait until 2019.
So if you’re thinking about taking an overseas trip this year, it’s wise to start planning for your spending money now.
One thing to be particularly mindful of is that the interbank (or market) rate, which is advertised on public exchange rate calculators, is not the rate that you will be given when exchanging currency – whether in cash or bank-to-bank transfer.