During a quiet week for the most traded currencies (GBP, EUR and USD), today we focus on the Antipodean currencies: the Australian and New Zealand Dollars. Which way have their exchange rates been heading, and why? Those of you looking to transfer money down under, perhaps for emigration later in the year or just to send money to friends or family, will be interested to read on.
Australian Dollar Rates
The Australian Dollar has traded at relatively stable levels in the last few months, having weakened significantly before that and since its most expensive peak against the Pound in March 2013. The Australian economy was one of the most robust after the economic crisis, with interest rates held much higher than elsewhere, making the Australian Dollar significantly more expensive. Recently however growth has slowed, interest rates have fallen back to record lows (currently 2.75%), and the currency has become cheaper again.
The Australian Reserve Bank Governor, Glenn Stevens, has said recently that the Aussie Dollar should be ‘more than a few cents’ lower (ie, cheaper to buy), to help rebalance the economy and encourage exports. Australian interest rates are not expected to rise again until around March next year, according to ANZ Bank forecasts – after interest rate rises in the UK and USA. One of the reasons that the AUD is steady now, is that the US Dollar has remained very weak, so capital has moved in to markets such as Australia, giving demand for the currency and keeping its price high. Therefore, if we see the US Dollar gaining ground as Federal Reserve interest rate rises approach, we could likely see a cheaper Australian Dollar for buyers in the UK as well as USA.
As with many currency pairs at the moment, the direction of Australian Dollar rates against the Pound and other ‘majors’, will likely depend on which economies start raising their interest rates first, compared to market expectations. Interest rates have always been one of the main influencing factors over exchange rates and that is very true in the worldwide economy now.
New Zealand Dollar Rates
The New Zealand Reserve Bank has already started to hike interest rates, on Thursday last week increasing them for the 4th time this year to 3.5%. In March, New Zealand had become the first developed economy to start increasing the cost of borrowing since the global financial crisis.
Unlike their neighbours (no pun intended), the New Zealanders did not start to hike interest rates as their economy grew after the crisis, and so have not had to bring them back down again, perhaps now seeing the fruits of those decisions. For sending money to New Zealand, the NZD has remained strong in recent years, with the economy expected to grow by 3.7% this year, there is high demand for the NZD and that has kept rates for GBP-NZD more expensive. Despite the interest rate rises, rates for sending money to New Zealand have in fact improved very slightly since the first movement in March.
New Zealand however would also like to see its currency weaken, to help exporters, and that would be good news for those of you looking to send money to the islands. As with Australia, this may happen if we see strength returning to the US Dollar in the coming months, but with interest rates in New Zealand already moving up, up and away from the chasing pack, it is harder to see the NZD becoming too much cheaper for those of us in the UK for now.
Australia and New Zealand both face challenges in the coming months, to keep their property markets from overheating, while timing interest rate rises carefully, and at the same time wanting to allow their currencies to weaken to aid their crucial export markets, particularly the USA and Japan. Anyone making the move down under in the coming months should keep a close eye on developments, and use a currency broker to keep them updated with the latest rates – as well as helping to save them money compared to their bank when the time comes to make any money transfers.