Cousins, brothers, neighbours – however you describe our relationship with the Aussies across the ditch there’s no doubt we’ve engaged in plenty of (mostly friendly) banter over the years. Even though they claim our best actors, singers and racehorses as their own, pretend they invented pavlova, call Jandals ‘thongs’ and give their towns and places names like Tittybong, Ugly Creek and Cockburn – us Kiwis just can’t get enough of the joint.
Nearly 1.4 million of us visited Australia last year, splashing over $2.6 Billion of our hard earned dollars in the process. As a side note, what’s with your coins Australia, who had the genius idea to make the $2 coin smaller than the $1 coin? Madness.
There was a time, way back in 2015 when it looked like the humble NZD would surpass the AUD in value, nearly hitting parity in April that year. Punching above its weight (like we always do) 1NZD hit a high of 0.9967AUD but it didn’t take long to come crashing back to reality, hitting a 5 year low of 0.87894 just 2 short months later. What a wild ride that was. In the space of 2 months, exchanging $2000NZD went from netting you a cool $1993.40AUD to a heartbreaking $1757.88AUD – a difference of $235.52.
Just to rub it in, that extra $235 would have bought you:
Ah foreign exchange rates, you truly are a fickle mistress. That goes to show you just how much things can change in the currency world in a short period of time, making it extra important for travellers to keep a vigilant eye on all the foreign exchange happenings leading up to their holiday.
So, what do economists think we have in store for us for the rest of this year?
It looks like the banks are expecting a pretty stable exchange rate for the rest of the year at this stage, but in today’s political landscape the scope for volatility is particularly high. How many Prime Ministers have you had in the last few years Australia?
How exactly do the banks decide what a currency will be worth in the future and how do I make sure I pick the best time to exchange my NZD? Well, that’s a very good question and if you’ve got a spare 4 years, an economics degree will give you just enough information to maybe get it right sometimes.
Banks and financial institutions use data from a wide variety of sources when undertaking NZD to AUD predictions and the methodology used to turn this data into forecasts is by no means fool proof. We recommend checking a few sources of forecast information to get a better idea and take a broad view of macroeconomic and political factors to give yourself the best shot at foreign exchange glory.
With a little bit of reading and the occasional glance at the news (or Twitter), Kiwi travellers can get a pretty good insight into the dynamics affecting fluctuations in the value of the NZD against the Australian Dollar. The first step is to get an understanding of macroeconomic fundamentals and their influence on exchange rates.
Appreciation: when the value of one currency increases relative to another. E.g. When the NZD went from 0.89AUD to 0.99AUD it appreciated (this means more bang for your buck and some extra fun money in your pocket).
Depreciation: Ouch, my ears. This is when the value of a currency decreases relative to another. E.g. When the NZD went from 0.99AUD unceremoniously back to 0.89AUD it depreciated (less Tim Tams and more budgeting).
Higher valued currency: cheaper imports (no more abandoning that online shopping cart), more expensive exports and extra spending money across the ditch.
Lower valued currency: more expensive imports, cheaper exports (more people overseas wearing drinking Cab Sav) and less cash for your Great Barrier Reef trip.
Inflation: The rate at which the general level of prices for goods and services is rising and, in turn, a currency’s purchasing power is falling. In other words, $10 back in the day used to get you a lot more than it does now - over time the value of a currency decreases as a result of supply and demand.
Economic growth: The increase in an economy’s capacity to produce goods and services. Growth is generally good, but we don’t want it to be too fast.
All good? Now let’s move onto the juicy stuff.
Don’t worry if your head is spinning, all of those factors are keeping an economist up at night somewhere in the world. Basically, the thing to remember is that a lot of things go into forecasting foreign exchange rates and a multitude of factors can give a currency a kick up the bum in an instant.
One of the most important factors at play is consumer sentiment in a currency. The more confidence investors have in an economy the better the currency usually performs. Events such as knifing Prime Ministers, dropping interest rates, natural disasters and trade agreements can have a major effect on consumers’ confidence in both the country and the currency. Think of it like this:
More trust = more people willing to invest in country = greater demand for currency = appreciation
Less trust = less foreign capital invested into country = decreased demand for currency = depreciation
If you’ve read this article and decided you’d rather just have someone do all the hard work for you, (we don’t blame you) simply sign up for our currency alerts. We’ll do all the hard work while you relax and we’ll let you know when the AUD hits your preferred rate. When you do bite the bullet and exchange your precious Kiwi dollars, don’t forget to add Rate Guard to your transaction in store to protect yourself and your back pocket from any quick drops in currency value. It’s free and will protect you against exchange rate movements within 14 days of purchase, we refund you the difference. How good is that, mate?
*Prices are approximations based on the difference between mean estimates for NZD to AUD in Q3 2019 and Q4 2019. Keep in mind prices may vary across states and individual vendors. Cost and quantity estimations should be used as a guide only. This blog is provided for information only and does not take into consideration your objectives, financial situation or needs. You should consider whether the information and suggestions contained in any blog entry are appropriate for you, having regard to your own objectives, financial situation and needs. While we take reasonable care in providing the blog, we give no warranties or representations that it is complete or accurate, or is appropriate for you. We are not liable for any loss caused, whether due to negligence or otherwise, arising from use of, or reliance on, the information and/or suggestions contained in this blog. Terms and conditions apply to Rate Guard. See travelmoney.co.nz/rate-guard for more details.