If you’re planning to travel this year, you might want to exchange your spending money sooner rather than later, as the Aussie dollar is set to drop, according to experts.
The difference between Australian and US 10 year government bonds has historically been used as a measure for the strength of the Aussie dollar. The Australian Financial Review recently reported that this difference has narrowed to just 16 basis points for the first time since March 2001.
While the Aussie dollar is currently buying US74.4 cents, at that time it fell to just US50 cents.
The different monetary policies of the US Fed and the RBA may be a driving factor in the debt yield spread’s quick narrowing, as the Fed focuses on lifting interest rates, while Australia’s central bank continues to play it safe and keep rates steady.
For this reason, AMP Capital’s chief economist, Shane Oliver, predicted the Aussie dollar would fall below US70 cents by the end of 2017.
"The interest rate differential in favour of Australia is continuing to narrow and will likely reach zero early next year as the Fed hikes rates and the RBA holds or cuts; constrained commodity prices will also act as a drag," he said.
With the Aussie dollar forecast to begin its decline and travel season approaching, Mozo Data Manager Peter Marshall said it may be a good time for Aussie globetrotters to think about locking in an exchange rate.
“A relatively small change in exchange rates can have a big affect on your holiday budget, so it’s worth looking at your options well in advance,” he said.
“When there’s a weaker Aussie dollar on the horizon, one strategy might be to load up a prepaid travel card with your holiday savings and lock in a good rate while you can.”
Prepaid travel cards allow spenders to load their own money onto a card to use while travelling abroad and to lock in an exchange rate in advance. Other options for spending while on an overseas trip include travel debit cards and travel credit cards.
If you’re heading overseas this year, make sure you head over to our travel money section to compare your options and find the right way to pay for your holiday.