The Aussie dollar is weak, except for in this desirable destination

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Australian visitors to the United Kingdom and the Eurozone will likely notice their funds are feeling more stretched than usual, with the Australian dollar trading against the pound and euro at levels substantially lower than a year ago.

Our dollar is worth about 52 pence from about 56 pence a year ago after reaching 60 pence, briefly, in September 2022. Against the euro, our dollar is buying about 60 euro cents, from 65 euro cents 12 months ago. As recently as August 2022, our dollar briefly reached almost 70 euro cents.

Japan is one of the few countries where our dollar is buying more than a year ago. Credit: visualspace

A check with the cost-of-living database, Numbeo, attests to the fact that prices of many things – from a regular-sized cappuccino in London to petrol in Rome – are particularly expensive for Australian travellers.

Our dollar is also weak against the US dollar, with our dollar trading at about US66¢, although that is in line with levels a year ago. Five years ago, our dollar was buying about US73¢.

Across the ditch, in New Zealand, our dollar is buying about $NZ1.09, about what it was buying a year ago.

Michael Judge, head of Australia and New Zealand at OFX, a global money transfer company, says it is relative interest rates that are the biggest factor behind currency exchange rates right now.

Interest rates are important drivers of exchange rates as higher interest rates in one country, compared to others, can attract more global investors, which can help strengthen the country’s currency.

The US Federal Reserve has been on a “very determined path to fight inflation and to increase interest rates”, Judge says.

The relatively high interest rates in the United States have increased demand for US dollars by international investors, which has lifted the value of the greenback against most other currencies.

While Australian interest rates have also been rising, they are below that of not only the United States, but also of the United Kingdom and the Eurozone, which is a factor in our dollar’s weakness against the pound, euro and US dollar.

Travellers to the UK and Eurozone will have noticed the weakness of the Australian dollar.Credit: Shutterstock

However, Craig James, the chief economist at CommSec, says Japan is one of the few destinations among those favoured by Australian travellers where the Australian dollar is “looking pretty good”.

Our dollar is buying about 97 yen from 94 yen a year ago. Five years ago, our dollar was buying about 82 yen.

Eating out in Tokyo is much less expensive now for Australian travellers, as is public transport and hotel accommodation.

The yen has been weak against most currencies as interest rates there are negative, as the Japanese central bank attempts to stimulate higher economic growth.

Mahjabeen Zaman, ANZ’s head of FX research, says our dollar’s value against the US dollar has recently moved higher, mostly because markets believe the US Federal Reserve is getting close to the end of its rate-raising cycle.

She is not expecting our dollar to revisit this year’s low of US62¢, and expects the Aussie dollar is unlikely to fall from here.

Zaman is anticipating some appreciation of the Australian dollar against the NZ dollar exchange rate over the next several months, and a “bit of upside” for the Aussie against the pound. She expects little change in the Aussie dollar against the euro.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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