Aussie dollar to fall again: how to protect your money transfer

Whether you’re an Aussie sending money overseas or investing in assets abroad, chances are you’ve noticed the Australian dollar (AUD) has fluctuated significantly over the first half of 2020. 

Back in March when news of the pandemic first broke, the AUD plunged to a 17-year low of 55 US cents, before rebounding and reaching highs of 70 US cents in June.

Although foreign exchange (FX) rates have been turbulent, new data from money transfer provider OFX shows that market activity actually increased over the March to May quarter. 

Among its Australian consumer clients, average transaction value jumped by a whopping 46% while transaction volume rose by 4%, compared to the same period last year. 

OFX’s head of Australia and New Zealand, Michael Judge says the surge in international money transfers (IMT) was largely because the fall in the AUD created a “massive opportunity” for Aussie consumers and investors with cash reserves overseas. 

“The Aussie/US exchange rates fell to a 17-year low but that also meant, if you were holding US dollars, it was sitting at a 17-year high. So the first response was to capitalise on the opportunity to transfer larger than average [amounts] back into Australian dollar denominations,” he said.

Meanwhile for people with Euros, it was the “best time to buy Aussie in 10 years.”

“We saw a lot of customers who had been dormant for an extended period of time start to transact for the first time in a long time. We saw a lot more participation,” Judge said.

AUD movements in months ahead 

Since then, the AUD has regained much of its strength. Right now, its mid-market exchange rate against the US dollar (USD) sits at 0.694930, according to the XE Currency Converter.* That means one Aussie dollar is currently worth just under 70 US cents. 

But Judge says the strong AUD may not be here to stay, with more volatility predicted for the second half of 2020. 

“I think [the AUD] will face some pretty strong headwinds. We’ve already seen some headwinds around the 70 US cents mark over the last couple of weeks,” he says. 

He says that’s in the form of the US-China trade war, as well as the upcoming US presidential election in November. Plus, the fight against coronavirus is far from over, with Australia and the rest of the globe still running the risk of second and third waves of COVID-19 cases, which would impact AUD value too.

“Frankly, [the Australian and global markets] have been supported up until this point in time not by performance, but by central banks and governments,” Judge adds.

“It’s going to reach a point where the Australian dollar is going to have to get back to standing on its two own feet, potentially in the absence of some of that support. But the Aussie dollar may well struggle to support its own weight.” 

Currency watch: Expert tips 

So in times of currency volatility, how can you avoid poor exchange rates when transferring money overseas? Judge says that it comes down to keeping a close eye on the market and making moves based on the trends you observe. 

That’s why chatting to a foreign exchange specialist like OFX, TorFX and WorldFirst is useful, as they have expert knowledge that can help drive more informed decisions. 

Here are a few other tips for Aussie investors and everyday individuals: 

Money transfers for investors 

If you have assets or cash reserves abroad, it may be worth revisiting your hedge ratio. That’s jargon for how much percentage of your assets you’ll secure at a fixed exchange rate (for instance, via a forward contract), and how much you’ll leave open and exposed to market movements. 

Judge recommends “potentially looking for something in the middle”; in other words, a 50:50 hedge ratio. 

That way, you can have the best of both worlds. On the one hand, you’ll have the safety net of a guaranteed exchange rate in case things don’t go in your favour, but on the other hand, if the AUD value drops as predicted, then you’ll have the freedom to hop onto even better rates. 

“If you are over-hedged in a falling Australian dollar environment, you’ll lose your ability to participate and you’ll lose your ability to take advantage of the benefits which come with the falling Aussie,” Judge says.

Money transfers for individuals 

But what if you’re the more everyday consumer sending money overseas, whether it’s funds to family or a cash gift to friends? 

Judge says it’s a good idea to just “wait and see”, if you can afford to do so (e.g. it’s not an emergency or a predetermined commitment, like mortgage repayments).

“For instance, if you’re in the UK and you’ve sold your house, a lot of individuals go straight into the mentality of having to transact because they have the means to transact,” he says.

“They don’t typically realise the benefit of time … of being very patient.” 

A couple of IMT features could also help you transfer funds at an exchange rate you’re happy with: 

- Rate alerts: Once set up, this tool will alert you via email or SMS when your desired rate has been reached. Usually you won’t even need to register to access these alerts, although bear in mind that because exchange rates are constantly moving, rates could be a little different by the time you make your actual transfer.

- Limit orders: This option also lets you choose the rate you want for your transfer. Your provider will then monitor the market for you, and once that rate has been hit, they’ll automatically send the funds for you. It’s more immediate than a rate alert, but it’s also legally binding so you won’t be able to change your mind. 

Ready to speak with a FX specialist, and make the most of your overseas transaction? Scroll down below for a few IMT options, or jump over to our international money transfers comparison table to see even more of today’s exchange rates. 

*Mid-market exchange rate drawn from the XE Currency Converter, as of 13 July 2020, 9.25am.