How to manage foreign exchange
Rate fluctuations can be costly. Here are some strategies that may help you save when changing currencies.
You may have read about the recent volatility of the Australian dollar and how that will affect the price of imported goods and the experience of travellers to certain international destinations.
When the Aussie dollar is low it means we are likely to pay more for products bought into the country, while travellers and people who need to send money overseas will have to pay out more to send the same amount.
If you are planning to travel, a good exchange rate could make a big difference to your enjoyment.
If you are regularly sending money to friends or relatives overseas at a fixed amount of their currency, then a bad exchange rate is bad news.
Here are some strategies to implement if you need to exchange money on a regular basis.
Monitor rates. Stay informed about exchange rate trends. Use online tools, financial news websites, or apps to track rates. Some platforms even provide alerts for favourable rates, enabling you to act quickly when the Australian dollar strengthens against your target currency.
Use forward contracts or limit orders. For those planning large overseas transfers, forward contracts offered by banks or forex (foreign exchange) providers can lock in a rate for future use. Limit orders allow you to set a desired exchange rate; the transfer executes automatically when that rate is reached, providing peace of mind against adverse fluctuations.
Timing. While timing the market perfectly is impossible, transferring money or exchanging currency during periods of relative stability can minimise losses. Avoid making transactions during times of significant political or economic uncertainty, which can lead to erratic exchange rate movements.
Compare forex providers. Not all exchange services are created equal. Compare banks, money transfer services, and fintech platforms to find the best rates and lowest fees. Platforms such as Wise, OFX, and PayPal can offer better exchange rates and lower fees than traditional banks.
Use multi-currency accounts. Consider opening a multi-currency account if you frequently deal with foreign currencies. These accounts allow you to hold and manage different currencies, giving you flexibility to exchange money when rates are favourable.
Hedge with travel cards. Prepaid travel cards let you load funds in various currencies at a fixed exchange rate, shielding you from fluctuations. These cards can also reduce transaction fees, making them an excellent tool for travellers.
Limit currency conversions. Whenever possible, use the local currency to avoid double conversions. For example, when abroad, opt to pay in the local currency rather than Australian dollars, as dynamic currency conversion services often impose unfavourable rates.
Stay budget conscious. Fluctuating exchange rates may increase the cost of travel or transfers. Adjust your budget to accommodate rate changes and explore cost-saving options such as off-peak travel or reducing transfer frequencies.
By adopting these strategies, you can more easily navigate the challenges posed by fluctuating exchange rates when you are travelling or sending money overseas.
Disclaimer: This article and any links provided are for general information only and should not be taken as constituting professional advice. National Seniors is not a financial advisor. You should consider seeking independent legal, financial, taxation, or other advice to check how any information provided relates to your unique circumstances.
