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The effect of foreign exchange fluctuations

The Effect of Foreign Exchange

Most currencies in the world can be freely traded, either by individuals or in some cases by financial institutions and traders. As a result, there’s a huge and dynamic market for foreign exchange that literally works 24 x 7; rates change every minute of every day, and so you need to check foreign exchange rates regularly.

The changes in foreign exchange rates because of these market fluctuations can be enormous, and could have a huge impact on your travel budget.

Let’s look at the Aussie dollar compared to the US dollar over an extended period of time.

In 2000, if you were an American visiting for the Sydney Olympics, you really had some spending power! The Aussie dollar was worth around 55 US cents in September 2000, so for every $100 US you had in your pocket when you left Los Angeles, you had over $180 in Aussie dollars when you walked out of Sydney Airport!

By contrast, if you escaped Sydney to visit the US during the Olympics, the story was a lot less fun. Leaving Sydney with $100, you would have around $55 by the time you walked out of customs in LA!

But the story is very different now, just over 10 years later. The Aussie dollar is worth around 102 US cents – so you’ve pretty much got one dollar in either currency when you start with one dollar. For an Aussie travelling to the US, that equates to a lot more purchasing power – instead of having to find roughly $2 to fund every $1 purchase in the US, you now just need $1 Australian. The same is true for online purchases, which is one of the reasons why these have skyrocketed in the last few years.

Even in much shorter timeframes, foreign exchange rate changes can have a big impact.

In the last year, the Aussie was worth as much as nearly 77 euro cents (in January 2011), and as little as 71 in March. The difference of 6 euro cents in just 90 days in early 2011 might have cost you nearly 500 Aussie dollars if you needed to spend 5000 euro on your holiday.

While we can’t help you “time the market” on foreign exchange, using our currency converter will help you keep up to date on the movements. If the dates of your travel or purchase can’t move, then you’ll also then get a clear picture of what something will cost you in Aussie dollars on a given day.

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