The Australian dollar (AUD) has been anything but stable over the past few weeks, fluctuating constantly between 70.5 and 72 US cents.
While this may not seem like much variation, for a larger international money transfer of AU$100,000, it could mean saving or losing as much as US$1,500.
And that volatility is only set to intensify throughout October. According to foreign exchange specialist OFX’s head of treasury, Sebastian Schinkel, the Aussie dollar could be knocked out of its current trading range as major global events like the deadline for Brexit and the US election loom on the horizon.
“There are a lot of things brewing in the background that may help the Aussie move away from that range. But it’s hard to tell which way we’re going because there are so many factors at play,” he said.
“Firstly a lot of attention is being put on the US election, and depending on what happens there, we should definitely see a move in the Aussie. We also have the same thing happening with Brexit in the next couple of weeks or months, and then whatever happens with COVID-19 and US-China trade tensions [will also have an impact on the Aussie].”
Plus, uncertainty lingers around Australia’s economic position going forward - the AUD could go up or down in value, depending on whether or not fiscal support announced in the recent Budget will help the economy recover.
“I think the Federal Budget will help cover the reduction in JobKeeper and JobSeeker [payments], but at the end of the day, the main challenge for the government and for the country is confidence. There’s a lot of offer for credit but what we are lacking is people actually demanding that credit because they’re afraid of making investments,” Schinkel said.
A negative risk sentiment would typically cause investors to flee toward ‘safe haven’ currencies like the US dollar (USD), Japanese Yen (JYP) and Swiss Franc (CHF), which would then weaken the Aussie dollar. That’s precisely why the AUD crashed to 55 US cents back in March after COVID-19 was declared a pandemic.
Meanwhile, a positive risk sentiment would likely do the opposite, boosting the value of ‘risky’ currencies like the Aussie dollar and Canadian dollar (CAD).
Money transfer tips to beat volatility
For companies with overseas suppliers or customers, currency volatility can make it tricky to figure out the best times to make a business money transfer.
Schinkel recommends having a conversation with a foreign exchange expert and figuring out your preferred trading levels.
“Australian businesses need to do their homework in terms of understanding what level of the Aussie dollar is good for them, bad for them, or breakeven,” he says.
In addition, if you’re an importer or exporter, you’ll need to figure out how much AUD you want to buy or sell in one go - will you buy all the amount you need for the year, or will you buy only a portion in case the Aussie dollar continues dropping or increasing?
For businesses worried about losing out to volatility, IMT tools like limit orders are useful in helping them manage risk. Limit orders involve setting a target rate, with the provider only making your transfer once your desired rate has been hit.
For example, you’re an exporter and the last time you made an export was back in September when the Aussie dollar was trading at 73 US cents. Now you’re looking to swap your buyer’s USD payment back in AUD. You’re getting a good deal as long you receive each AUD for under 73 US cents, and the lower the AUD/USD exchange rate, the cheaper your money transfer would be.
Schinkel explains that “then it's just a matter of checking where the market is and making a decision of, say, buying half of your [AUD] amount at 72 [US cents] and then leaving a limit order at 71.”
“If the Aussie doesn’t drop to the lower level, you can just buy the rest at 72 [US cents] anyway, but with an order in place, you give yourself the opportunity to take advantage of a potential drop and get a better price overall.”
Check out our guide on other IMT features, or scroll down below to compare AUD/USD exchange rates today. To look at deals for other exchange rates, head over to our international money transfer comparison table.
Today’s foreign exchange rates
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