Track the history and performance of the US dollar to find the best exchange rate for your international money transfer to the United States.
When you send an international money transfer to the United States, it’s vital to compare your options and shop around for the best deal. This will help you find a transfer provider that offers the best exchange rates and lowest fees, providing the best value for money for your transaction.
However, it’s just as important to send your transfer when exchange rates are at their most favourable. And to choose the right time to send money to the USA, you need to examine the history and past performance of the US dollar (USD) to predict how it will fluctuate in the future.
Let’s take a closer look at the USD and how you can find the right time to send an international money transfer to the USA.
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History of the USD
The USD is the official currency of the United States of America and is the world’s most commonly traded currency. It’s also the benchmark against which all other global currencies are compared, with exchange rates used to gauge the value of everything from the Australian dollar (AUD) to the Zambian kwacha (ZMW).
The history of the USD can be traced back to 1775, when the Continental Congress introduced the Continental currency. However, it wasn’t until 1785 that the dollar was chosen as the official monetary unit, with the introduction of an organised monetary system enforced by the Coinage Act of 1792. Paper notes, also known as greenbacks, were introduced in 1861.
The worth of the USD was originally based on the value of gold, set at $20.67 per ounce, but the gold standard was abandoned for a time during the Great Depression. Then, under the Gold Reserve Act of 1934, the value of gold was fixed at $35 per ounce.
However, it wasn’t until the end of 1944, with the end of World War II fast approaching, that the leaders of the world’s major economies chose the USD as the world’s benchmark currency. While all other currencies would be fixed to the USD, the USD was locked to an exchange value to gold of $35 an ounce.
But 1971 saw the introduction of floating currencies under President Richard Nixon, allowing the USD to be measured against other currencies rather than fixed to the price of gold.
USD exchange rates
As the most popular currency in the world, the USD has regularly traded at a premium against most other global currencies. Backed by the world’s largest economy, the USD has a history of strength and finds global acceptance, with various countries using it as official legal tender. Some of these include Panama, Ecuador, East Timor, El Salvador, Palau and Zimbabwe.
As an example of the strength of the USD, it has always traded at a higher value than the AUD, except for a short period between 2011 and 2013. During this time, the US was still recovering from the effects of the subprime mortgage crisis while the Australian economy was in the midst of a period of sustained growth.
However, there are some currencies that regularly trade at a higher value to the USD. For example, during the 10 years to November 2016, 1 USD traded at between 0.47 and 0.80 British pounds (GBP).
The past decade has seen enormous fluctuations in the value of the USD. While the subprime mortgage fallout and global financial crisis saw the value of the USD plummet in 2007 and 2008, the recovery was well under way by 2009. Strong economic performance throughout 2015 and 2016 saw the USD hit a 13-year high in 2016, buoyed by predictions of rising interest rates and increased government spending.
Factors that affect the value of the USD
Exchange rates are far from simple. There are several factors that can influence the value of a country’s currency, from the overall performance of its economy to interest rates, political changes and the supply and demand for a currency.
For example, following the subprime mortgage blowout in 2007, the USD dropped in value against most other major world currencies. It fell from a value of 1 USD = 1.29 AUD in February 2007 to be worth just 1.03 AUD by July 2008.
More recently, immediately following the results of the 2016 presidential election, the so-called “Trump Slump” saw the value of the USD and global share markets drop. Surprised by the results of the election, investors were initially keen to sell their USD, leading to a fall in the currency’s value in much the same way the value of the GBP dropped following the Brexit vote earlier in 2016.
However, while the USD fell more than 100 basis points against major currencies like the euro and the Japanese yen, this trend was then reversed and all losses erased as markets began to warm to the potential economic reform of a Trump presidency.
When is the best time to transfer money to the USA?
The best time to send money from Australia to the USA is when the AUD/USD exchange rate is at its highest. In other words, when the value of the AUD relative to the USD is relatively strong.
Unfortunately, as we touched on above, there are many factors that can have an influence on the value of any currency pair, so it can be difficult to work out whether an exchange rate is peaking, in a trough, or moving up or down.
However, there are a few things you can do to help ensure that you choose the right time to send an international money transfer to the USA. Keep up to date with economic and political developments in the USA and Australia, and monitor the financial news in both countries for any stories that could have an impact on the exchange rate. You will also be able to find exchange rate predictions from respected economists published or broadcast by media organisations around the world.
Another tool to help you choose the best time to send USD is to look back at the past performance of the exchange rate. This will help you grasp just how much exchange rates can fluctuate, and will also give you an idea of some of the factors that can influence the value of the USD.
As you can see in the graph of the AUD/USD exchange rate below, the best times to transfer AUD to USD in the year leading up to 22 November 2016 were:
- In April 2016, when 1 AUD = 0.78 USD
- In August 2016, when 1 AUD = 0.77 USD
- In November 2016, when 1 AUD = 0.77 USD
Conversely, the worst times to send money to the USA were in January 2016 and May 2016, when the value of 1 AUD dropped to 0.68 and 0.71 USD respectively.
* Screenshot taken from xe.com on 22/11/2016
Tom is living and working in Australia, taking time off to explore the country whenever he can. However, he still sends regular money transfers back home to his aunt in California to pay off the money she loaned him to buy his first car. Tom needs to send a transfer of US$1,000 to pay off the last of the debt, but he knows the importance of waiting until the exchange rate is right to get the best value for money.
At first, Tom plans to send the money in January 2016, but he realises the value of the AUD against the USD has plummeted to its lowest point in more than five years – 1 AUD is worth just 0.68 USD.
So rather than send the transfer right away, Tom decides to wait for conditions to improve. Just a few months later in April, the value of the AUD has increased substantially compared to the USD, with 1 AUD now valued at 0.78 USD, so Tom sends his transfer. As the table below shows, this means Tom can spend AUD$188 less to send the same amount of USD to his aunt, simply by waiting a few months until the exchange rate is favourable.
|January 2016||April 2016|
|Exchange rate||1 AUD = 0.68 USD||1 AUD = 0.78 USD|
|AUD needed to transfer US$1,000||AUD$1,471||AUD$1,283|
The importance of choosing the right money transfer provider
There are two factors to consider when trying to get the best value for money from an international money transfer: the first is sending money when the value of the USD is low and you can get the best exchange rate, and the second is finding the transfer provider that offers the best exchange rate.
Money transfer companies make a profit in two ways:
- By charging transfer fees. Depending on the provider this could be a flat fee, or a fee charged as a percentage of your total transaction amount.
- By adding a margin on top of the exchange rate. Money transfer providers purchase currency at one rate, and then sell it on to you at a lower one. For example, if a bank purchases USD at a rate of 1 AUD = 0.75 USD, they might sell it onto you at a rate of 1 AUD = 0.71 USD.
The fees and exchange rate margins can differ greatly from one company to the next, so it’s essential to compare money transfer providers to find the best value for money.
For example, transfers direct from your bank account to a US bank account are convenient, but banks offer some of the worst exchange rates going around. Cash transfer companies like Moneygram and Western Union are great if you want to send a fast cash transfer, but they often have high transfer fees and you will be able to find better exchange rates elsewhere.
The highest exchange rates and lowest fees are usually available from specialist online transfer companies. These providers, such as HiFX and TorFX, trade large volumes of foreign currency and therefore charge a smaller exchange rate margin. They also tend to charge lower fees, with some companies even waiving all transaction fees on large transfers.
How to compare money transfer providers
If you want to send a USD international money transfer, consider the following factors before you choose a transfer provider.
Compare companies to see which one offers the best exchange rate for USD. Even a difference of a couple of cents in the exchange rate can have a huge effect on the cost of your transfer, so look for a company that regularly offers attractive AUD/USD rates.
Remember that the exchange rate is only part of the cost of a transfer; the other expense you need to consider is the transfer fee. Compare the fees charged by different companies and see how they might vary based on the size of your transfer. If you’re likely to send large transactions, you might want to search for a company that waives fees on large transfer amounts.
Sending and receiving options
Some companies only allow you to send transfers online, while others will also offer phone transfers, in-branch transfers and smartphone app transfers. Also be sure to check how your beneficiary will receive the funds – direct to their bank account or from a cash collection point.
If you need to send recurring transfers, can you set up a repeat payment schedule? If you want to safeguard your money against falling exchange rates, can you place a forward contract? If you don’t have the time to keep searching for the exchange rate you want, can you place a limit order that will automatically execute your transfer when the desired rate becomes available?
Check to see what sort of customer support options the company offers, such as phone, email, live chat and online help centres. This will ensure that you can access the help you need if you ever experience any transfer problems.