Will the Aussie dollar continue the downward trend it's experienced in 2023, or is there a rebound in store? We've highlighted the outlook for this year, predictions from the big four banks and the main factors impacting the AUD/EUR exchange rate.
AUD outlook for 2023
The Australian dollar has been on a downward slide in the first nine months of 2023. It's fallen in value against the US dollar, British pound, euro and other major currencies. After starting the year at €0.65, the Aussie dollar was trading at around €0.59 to €0.60 by mid-August.
Many experts predict that this trend will continue in the months ahead. One key factor is economic troubles in China, Australia's largest trading partner. With the country's slow economic recovery post-COVID and growth coming to a standstill, it's set to put downward pressure on the Aussie dollar.
At the same time, the US dollar is experiencing an upward surge, driven by a strong economy and falling inflation. And with higher interest rates in the US attracting more investors, Commonwealth Bank reported in August 2023 that the Aussie dollar falling below $0.60 before the end of 2023 is a real possibility.
AUD vs euro forecast
In its July 2023 Market Outlook, Westpac predicted that the Australian dollar would be trading at €0.62 by the end of 2023. This is then expected to increase slightly in the subsequent 12 months to reach €0.64 by December 2024.
Meanwhile, NAB is slightly more conservative in its AUD to euro forecast, predicting that 1 AUD will buy €0.58 in December 2023. But NAB is also predicting a rise in the AUD/EUR exchange rate in 2024, forecasting it to reach €0.61 by year's end.
Flagging uncertainty around the AUD/EUR exchange rate, ANZ predicts that 1 AUD will be worth €0.61 by the end of 2023.
Key factors impacting the Australian dollar and euro
There are many factors that affect the AUD/EUR exchange rate. Some of the major ones include:
- Interest rates. While interest rates in Australia are at their highest levels in years, the Reserve Bank's official cash rate of 4.10% is significantly lower than the US Federal Reserve's rate of 5.25% to 5.50%. There's speculation that the RBA will raise rates in November as inflation rises but Fed chairman Jerome Powell has also indicated future US rate hikes are a possibility. If these predictions are accurate, the higher rate of return will make the US dollar a more attractive target than the Aussie dollar for investors.
- Commodity prices. Rising or falling commodity prices can have a big impact on the value of the AUD. For example, if China's weak economy drives down demand for iron ore, Australia's largest export, this could put downward pressure on the Aussie dollar.
- German economy. As the euro is the official currency in 19 countries, economic developments in each of those countries have the potential to influence the value of the euro. Germany has the largest economy in the European Union, so economic and political developments in that country have the potential to impact the performance of the euro.
- Russia's invasion of Ukraine. Vladimir Putin's invasion of Ukraine in 2022 has had a major impact on the global economy in the past 18 months. It caused supply issues, rising energy prices and much consumer uncertainty, and a driving force behind much of the euro's volatility in recent times.
The best time to exchange AUD to EUR
If you're using Australian dollars to buy euros, the best time to exchange money is when the exchange rate is at or near a high over three to five years. This is when you get the most bang for your buck.
For example, if you exchanged AUD to EUR in August 2022, 1 Aussie dollar would have bought you 69 euro cents. But if you exchanged currencies in August 2023, the lower exchange rate of 1 AUD = €0.58 would give you a lot less buying power.
It's extremely difficult to predict which way the AUD to euro exchange rate will move. And while staying up to date with global economic developments can help you make more informed estimates of where the market is heading, it's worth taking advantage of advanced transfer tools if you need to send money to Europe.
For example, some specialist money transfer companies offer forward contracts, which allow you to lock in an exchange rate today for an international money transfer that will be sent up to two years in the future. They also offer limit orders, which ensure that you automatically exchange AUD for EUR when the exchange rate you want becomes available.
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