What to expect in international money transfers in the new financial year?
After a year of global border closure, Australia saw a sharp rise of consumer goods purchased, particularly international goods, keeping international money transfers (IMT) from plummeting.
At the start of 2020, the World Bank predicted that global transfers were going to fall by 20%, but in the end it only fell by 1.6%.
While the AUD to USD exchange rate held steady at around 0.77 cents per dollar throughout June, mid-last week it dropped to a 6-month low of just below 0.75 cents. That’s probably due to the spike in COVID-19 cases in NSW and Australia.
But according to OFX’s head of Australia and New Zealand, Michael Judge, there is anticipation around the potential for the AUD to strengthen against the USD despite the recent drops.
“We saw an enormous explosion in demand and requirements for FX services initially in March 2020 when the pandemic surprised a lot of us,” said Judge. “That realisation of that trend has been evidenced again over the last 3-4 weeks as well. It’s almost like a natural demand creator when you see a little bit more volatility, you start to see a little bit more responsiveness, particularly amongst the business community.”
While a volatile market sounds less than ideal, exchange rate fluctuations do encourage people to exchange currency because they want to get the most out of their dollar. This can then drive up activity in the IMT market.
Business tips for cross border trade
For the 2021-2022 tax year, Judge expects the market to have a growth rate of 1.5%, with a bulk of IMT cases stemming from the import and exports of ecommerce businesses. However, once the Australian border opens, there may be a shift towards personal transfers and payment of services as people are allowed to move globally and live and work overseas.
It is recommended that businesses have currency plans when it comes to operating in money transfer markets:
- Understand the business’ underlying risks
- Partnering with a specialist - they can offer you access to IMT tools such as forward contracts and limit orders to help limit your exposure to unfavourable rates
- Scenario-based planning for moments of uncertainty and new trends
- Setting good business objectives that fit the plan
Keep in mind that exchange rates can vary from provider to provider, so make sure to compare offers using Mozo’s IMT table.
The future of FX
International money transfer service providers are continuing to expand the countries Australians can send money to, even amidst the country's closed borders.
Wise (formerly TransferWise) recently expanded its services to Fiji, offering the service of sending money to people’s mobile wallets instead of bank accounts.
And with Australia expected to open mid-2022, Judge expects money transfers to grow as the global economy becomes mobile with people traveling and migrating to Australia.
However Judge predicts that the market will also become more volatile, depending on the nature of inflation in the next couple of months.
“We started to see quite a few signs of early inflation over the past couple of weeks, so that has actually been a trip-switch for the return to volatility. I think if some of those indicators around inflation continue, you’re going to continue to see a little bit of instability and heightened levels of uncertainty,” he says.
For more information on IMTs check out Mozo’s resource page.
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