Top tips to reduce the ‘ouch’ factor
While the strong Aussie dollar is good news for some, one of the groups feeling the pinch is expats living in Australia who have money overseas.
And according to Joe McKenna, of specialist foreign exchange broker World First, with the dollar expected to remain strong in the first half of 2011, such expats should be considering strategies to maximise the value of any funds they bring into the country.
“Most major currencies are struggling against the Aussie dollar at the moment, including the British pound, the Euro and the US dollar,” he said.
“This is good news for many, particularly those travelling overseas. However, we are also seeing more and more expats asking about the best ways to move their money into the country, concerned that the strength of the dollar is depleting funds they had earmarked to build their new lives here.
“For example, some clients may have sold a house in their home country but are now hesitant to move the proceeds here due to the eroded value of the sale proceeds. There are also those holding retirement savings offshore who are feeling that they are losing too much of the value of their nest egg if they bring that money over to Australia now.”
According to Mr. McKenna, predictions that the dollar will remain strong for the next six months or so means that these expats’ situations are unlikely to improve any time soon.
“While currency market movements are notoriously hard to predict, we expect that the dollar will stay high against other major currencies for the first half of 2011, then gradually depreciate as the pace of economic recovery in the UK, US and the Eurozone picks up.
“For example, we are predicting $1.65 to the British pound in three months’ time, which isn’t a significant change on current rates, then $1.75 to the pound in six months and $1.90 this time next year.”
Mr. McKenna has five tips for expats who need to bring money into Australia before the dollar begins to fall:
- Be realistic. Many expats benchmark their expectations against the much higher rates that prevailed a few years ago rather than current rates, but these highs are not likely to return for a number of years.
- Shop around. Exchange rates and fees can vary significantly between providers for the same transaction. Banks in particular often take a large slice – up to three per cent – in commission, so it’s well worthwhile exploring the market for the best deal.
- Service counts. Find a provider that will closely monitor rates and contact you as soon as they rise to your chosen level. Exchange rates fluctuate every second, so let someone else be your eyes and ears in the markets.
- Ask about flexible hedging. If you need to lock into a rate today – for example if you’re planning a large purchase such as property – the most commonly used hedging tool is a forward contract. However, this locks you in to the current low exchange rate. Instead, ask your broker if he or she can offer a more flexible alternative, with some ability to benefit in upside if the market moves in your favour.
- Seek professional advice. We are seeing more and more clients who’ve been burned by either taking no advice at all or heeding poor advice, for example on online forums. Instead, speak to a specialist who can offer you sound, up-to-date advice that is tailored to your needs.