COVID vaccine race to boost some currencies and leave others behind
The British Pound has hit new highs against the US Dollar, as the UK’s leading vaccine efforts have seen more than 16 million of its residents receive the jab so far. In fact, the GBP climbed past US$1.41 today - the first time it’s reached this level since April 2018.
According to international money transfer (IMT) specialist TorFX’s managing director, Nigel Fox, the speed and success of each country’s vaccination programs will have “a direct correlation on their respective currencies” this year.
He says that’s why “the Pound has enjoyed an extended bullish run, with the currency propelled to multi-month and multi-year highs, on hopes the UK’s accelerated vaccine rollout will pave the way for a swift economic recovery in 2021.”
For context, a ‘bullish run’ refers to a sustained rise in currency value.
“The Pound is perhaps the best positioned to soar this year as the UK’s vaccine success and the eventual resolution of Brexit paves the way for a strong economic rebound,” Fox says.
“In contrast, the EU’s disappointedly slow rollout of its vaccination program looks to stifle the upside potential in the Euro this year.”
Interestingly, vaccine hopes and a recovering world economy could trigger even more falls in the US dollar. That’s because these positive sentiments mean investors no longer need to flee to safe currencies like the USD, as they did back in March 2020 when news of the pandemic first broke.
“In the wake of unprecedented monetary stimulus from central banks and a rebound in global growth as most economies reopened, we saw a rebalancing of currency markets, with the US Dollar losing its sparkle,” Fox says.
“As the world emerges from the pandemic, and with the outlook for 2021 improving, we’re likely to see the recent USD selling bias remain firmly in place.”
How will the Aussie dollar move in 2021?
This week, Australia also commenced its vaccine plans, with frontline healthcare staff and seniors being the first in line to receive the first dose. Meanwhile, the Aussie Dollar has continued to do well and make gains against the US Dollar, breaking 79 cents today.
Fox says a combination of factors - Australia’s strong economic recovery as well as a weakening US dollar - has made the Aussie dollar increasingly attractive to investors.
However, he warns the AUD could face some headwinds this year, including the withdrawal of government support like JobKeeper.
“While Australia appears to have come out the other side of the pandemic, Prime Minister Scott Morrison’s reluctance to provide additional fiscal stimulus could hamper Australia’s economic recovery and limit further upside in the Australian Dollar,” he says.
Australia’s ongoing tensions with its largest trade partner China may also have consequences on the Aussie dollar. Last year, China slapped further tariffs and restrictions on Australian exports including wine, beef and barley, and this according to Fox, is “likely to reflect poorly on AUD exchange rates”.
Is it a good time to send money overseas?
That said, the Aussie dollar may ultimately beat those potential headwinds to maintain an upward trend for the rest of the year. If that’s the case, then it would be great news for any Australians looking to send money overseas.
“Moving money out of Australia is likely to yield better returns as the year continues and AUD exchange rates strengthen further,” Fox says.
Despite this optimistic outlook for the ‘Aussie’ though, being prepared for any unexpected fluctuations in exchange rates is still crucial.
“Of course, if 2020 taught us anything it’s to never take a situation for granted,” Fox says.
“If you need to move money to or from Australia in the year ahead, explore your currency options to see how you can protect yourself from any as yet unforeseen volatility.”
For instance, you may look at using a mix of money transfer tools, like forward contracts (which allow you to secure a current exchange rate for a future transfer) and limit orders (which allow you to set a target rate and your transfer only takes place once that rate is hit). You can read more about these IMT features in our guide.
Or if you’re interested in comparing some of today’s exchange rate offers, head on over to our international money transfers comparison table to get started.