If you want the best* exchange rate when you send money overseas from Australia, you need to understand the factors that influence the value of the Aussie dollar (AUD).
When you send an international money transfer from Australia, the exchange rate you receive has a huge impact on your bank balance. But to find the best* exchange rate and get the best value for money, you need to time your transfer for when the AUD is strong against other global currencies. It’s also vital to compare money transfer providers and find the company that offers the best* exchange rates for your needs.
Read on to find out how you can save money when you send money overseas.
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Definition: Best* exchange rate
There is no single best best exchange rate, and the best exchange rate for you may not be the best for someone else. This is because there are other factors to consider when sending an international money transfer in addition to the exchange rate, including the transfer fees, the payment method, the speed of delivery and the level of customer service. One person may need to transfer money within 24 hours, while others may have no time frame, which may affect the exchange rate. Exchange rates are also affected by wider economic factors. Previous performance isn't an indication of future performance. You should consider a range of products when deciding which provider is most suited to your personal money transfer needs.
History of the AUD
Introduced in 1966 and originally named the “royal”, the AUD replaced pounds, shillings and pence. The AUD was initially pegged to the British pound (GBP) at a rate of 2 AUD to 1 GBP, but the AUD switched to a managed floating currency and eventually became a free-floating currency in 1983. This means its value is now determined by supply and demand on the international money markets.
For the next two decades the AUD fluctuated against the world’s benchmark currency, the US dollar (USD), reaching a high point of 0.881 USD in December of 1988 and a low of 0.477 USD in April of 2001.
In the 21st century, backed by Australia’s stable economy, the AUD has been a sought-after currency on global markets. Australia’s ability to avoid the recession which swept across much of the world following the global financial crisis also saw the AUD perform strongly. These factors have seen it rise to the position of the fifth most traded currency in the world.
AUD exchange rates
To get a clearer picture of the strength of the AUD, it’s important to look at how it performs against other major currencies. The table below tracks the value of the AUD against a selection of global currencies during the past decade.
|January 2006||January 2011||January 2016|
Factors that affect the value of the AUD
Exchange rates are complicated and there are several factors that can cause the value of one currency to rise or fall relative to another. This includes everything from each country’s interest rates, economic performance and political changes, to economic and political circumstances right around the world.
One undeniable truth about the Australian economy and the value of its dollar is its dependence on a stable worldwide economy. With Australia seen primarily as a commodities exporter, this often leads to large fluctuations in the value of the AUD due to the volatility of that market. This was seen in the early 1970s, when a boom in commodity sales closed the gap between the AUD and USD considerably. During the early 1980s, the AUD surged again when the OPEC oil prices rose, and investors began looking towards Australia’s rich natural resources.
While the United States and the rest of the world began to falter economically in 2008, the AUD gained a significant amount of ground against the USD. Again, it was a boom in commodities, led by China’s economic growth, coupled with an interest rate differential favouring the AUD that led to the surge, and allowed it at times to surpass the USD in value.
When is the best time to transfer money from Australia?
The best time to send an international money transfer from Australia is when the AUD is strong against other global currencies. This means that to get the best value for money, you should send your transfer when the AUD is valued at a high rate relative to the currency in the country where you want to send money. If sending to the US, you would want the AUD/USD exchange rate to be high, and if sending to the UK, you’d want your AUD to purchase as many GBP as possible.
However, there is an extensive list of factors that can influence the exchange rate between the AUD and any other country. These include everything from interest rates and unemployment to political changes, both in Australia and in the country where the other currency is accepted, as well as economic and political developments on a global scale. These factors can all have an impact on whether an exchange rate will rise or fall, and in turn on when is a good time to send AUD overseas.
It’s also worth pointing out that just because the AUD is strong against one currency at a particular point in time, that doesn’t mean it will also hold a high value against other currencies. For example, political turmoil in the US might mean the AUD is performing strongly against the USD, but positive economic forecasts in the UK could lead the AUD to drop in value against the GBP.
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Predicting the best time to transfer AUD
Although exchange rates are far from simple and predicting their future performance is downright difficult, there are a few things you can do to find the right time to send an international money transfer in AUD.
Monitor economic and political developments in Australia, in your transfer destination, and anywhere else that could have an impact on an international scale. It’s important to remember that the factors that influence exchange rates could be local, national or global. For example, while the release of the latest Australian unemployment figures could impact on the AUD, a presidential election in the United States could affect currencies all around the world.
Next, watch, listen to and read media reports of economists’ forecasts for which way the AUD is headed. Taking a look back at the historical performance of the AUD against other major currencies will also help you understand the trends and events that impact exchange rates, as well as whether the AUD is currently under- or over-valued.
The graph below charts the recent history of the AUD against the Chinese yuan (CNY). It shows that the best times to transfer AUD to CNY in the year preceding 25 November 2016 were:
- In April 2016, when 1 AUD = 5.04 CNY
- In August 2016, when 1 AUD was worth 5.10 CNY
- In November 2016, when 1 AUD = 5.27 CNY
Conversely, the worst times to send money to China were in January and February, when 1 AUD traded between 4.49 CNY and 4.70 CNY.
* Screenshot taken from xe.com on 25/11/2016
Case study: Sam times his transfer
Sam lives in Melbourne and he wants to send CNY5,000 to his grandmother in China as a gift. However, Sam is eager to get the best deal for his transaction and doesn’t want to lose any more money than he has to due to a poor exchange rate.
He sets himself a timeline of one year, from December 2015 to November 2016, to find the best* exchange rate for his AUD to CNY transfer. Sam initially plans to send the transfer in January 2016, when 1 AUD = 4.49 CNY. However, a look back at the five-year history of the AUD/CNY exchange rate shows him that this is actually quite a low exchange rate, so he decides to wait for conditions to improve.
Just a few months later, in April, 1 AUD has climbed to a value of 5.04 CNY. Sam could send the transfer now, or he could wait a little longer and take advantage of an even better exchange rate in August (1 AUD = 5.11 CNY) or November (1 AUD = 5.27 CNY).
As the table below shows, waiting just a couple of months for an improved exchange rate in April could have helped Sam save AUD$121 to send the same amount of CNY. But had he sent the transfer at the AUD/CNY peak in November, he could have saved a total of AUD$165 when compared to sending money when the rate was at its lowest in January.
|January 2016||April 2016||August 2016||November 2016|
|Exchange rate||1 AUD = 4.49 CNY||1 AUD =5.04 CNY||1 AUD = 5.11 CNY||1 AUD = 5,27 CNY|
|AUD needed to transfer CNY5,000||$1,114||$993||$979||$949|
Why you need to choose the right money transfer provider
Choosing the right time to send an AUD international money transfer is just one half of the equation; the other half is choosing the right provider to send the transfer.
Transfer companies make profits in two ways:
By charging fees
You will usually need to pay a fee for each transfer, which could either be a flat charge or a fee calculated as a small percentage of your total transaction amount.
By adding a margin to the mid-market exchange rate
Most transfer companies purchase foreign currency at the mid-market wholesale rate, add a profit margin and then sell it on to you. For example, a company might purchase INR at a rate of 1 AUD = 50 INR, but then sell that currency on to you at a rate of 1 AUD = 48 INR.
However, no two money transfer providers are the same, and the exchange rates they offer and fees they charge vary substantially. So if you want to get the best* AUD exchange rate and the best value for money, you need to compare money transfer providers before you choose one.
Money transfer options
Your main options when you want to send an AUD international money transfer are:
Sending a transfer direct from your Australian bank account is simple and convenient, as there’s no need to research providers or open a new account. However, banks charge high transfer fees and offer some of the worst exchange rates on the market.
Moneygram and Western Union both offer fast cash transfers to and from Australia, and they both have hundreds of thousands of cash pick-up locations around the world. However, their fees can be high and you can typically find better exchange rates from online transfer providers.
If you want the best* exchange rates and lowest transfer fees for your transaction, you will usually get them from specialist online transfer providers. These companies, such as WorldRemit and CurrencyFair, offer high AUD exchange rates and charge minimal fees. Some companies even waive their fees on large transfers.
PayPal also offers quick and convenient international money transfers. However, due to its fee structure, PayPal is only really an option worth considering when transferring small amounts.
Case study: The benefits of comparing money transfer providers
Rajiv moved to Australia from India five years ago with his wife and two young children. Thanks to his career taking off down under, Rajiv can afford to send regular payments back home to Mumbai to offer financial support to his sister.
But each time Rajiv sends money overseas from his Australian bank account, his bank takes a big cut by offering a low exchange rate and imposing a hefty transfer fee. So when the time comes to send AUD$2,000 to INR, Rajiv decides to compare his options to see if he can find a better deal. He compares his bank’s exchange rate and fee with those of a cash transfer company and two online transfer providers.
As you can see in the table below, Rajiv can send an extra 4,034.65 INR simply by using online transfer company 2 instead of his bank. And he doesn’t have to pay any extra AUD to do so – in fact, he can even save AUD$8 in transfer fees.
|Bank||Cash transfer company||Online transfer company 1||Online transfer company 2|
|Exchange rate||1 AUD = 48.574343 INR||1 AUD = 50.0278 INR||1 AUD = 50.28 INR||1 AUD = 50.9460|
|Amount sent (in AUD||$2,000||$2,000||$2,000||$2,000|
|Total cost of transfer||$2,022||$2,025||$2,005||$2,014|
|Amount received (in INR)||97,148.69||100,055.60||100,558.00||101,183.34|
How to compare money transfer providers
If you’re looking to send money overseas from Australia, there are several factors you should consider when choosing a money transfer provider:
Exchange rates can vary markedly between transfer providers, so compare rates across all the currencies you are likely to transfer. Look for the companies that regularly offer the best* rates, but make sure they don’t come with high transaction fees attached.
Some companies charge a flat fee on each transfer, others charge a fee calculated as a percentage of your transfer amount. If you send a large amount of money overseas, there are some companies that won’t charge any fees at all.
Sending and receiving options
Can you send transfers over the phone or by visiting a branch, as well as lodging transfer requests online? Is there a smartphone app so you can send money on the go? Also check to see how your beneficiary will receive the funds, and how long it will take for each transaction to be completed.
Check to see which currencies each provider lets you purchase with your AUD. Some global currencies are supported by virtually every transfer provider, such as the USD, EUR and GBP, but other rare currencies may not be available from all companies.
Compare the flexible transfer options available from different companies. For example, can you set up a recurring payment plan to save time in the future, or place a forward contract to minimise the impact of falling exchange rates?
Finally, make sure you will be able to access efficient customer support if you ever have any transfer problems.