Considering the plethora of amazing places and experiences our world has to offer, it’s a shame that many people, overwhelmed by choice, stick to going back to places they have visited before. In fact, a poll conducted in the US confirmed that three out of four people always go back to the same places.i
If you are keen to avoid the ‘same old, same old’ but short on ideas, it can help to think not of where you want to go, but what you want to do. One travel trend that’s not going away any time soon is the desire for genuine experiences. Just look at Airbnb – in addition to being an accommodation platform it now offers a massive range of around 41,000 ‘experiences’ across 93 countries and more than 2000 cities.ii
So, what do you look for when there is a big wide world out there with so much to see and do? Think about what you and your travelling companions love.
If you have a ‘need for speed’
Given any currency’s susceptibility to changing economic conditions both at home and overseas, the Aussie has had quite a bit to deal with lately.
Rising interest rates can boost the Australian dollar by making us more attractive for foreign investors, providing our rates are rising ahead of the US and others.
If foreign investors buy more Australian assets because they can get a bigger return on their investment, more money flows into Australia which increases demand for Australian dollars. And if investors hold more Australian assets than overseas ones, less money leaves the country, decreasing supply. So, increased demand and decreased supply see the Australian dollar rise.
While the Reserve Bank of Australia (RBA) has increased rates by 4 per cent in Australia since May last year as it battles to get inflation under control, rates have also been rising in the US.
The US Federal Reserve has undertaken its most aggressive rate-rising cycle in 40 years with rates now at a 22-year high and signs of further increases likely. This has put pressure on the Australian dollar, narrowing the difference between the US and Australian rates, meaning foreign investors will look for better returns elsewhere.
Changing economic conditions
The value of the Australian dollar is also affected by changes in economic conditions as well as rises and falls in other financial markets. For example, in August news that the unemployment rate had increased slightly and an easing in wage price growth led to speculation that the RBA would put a hold on rates, putting a dampener on the Aussie.
Also affecting the dollar was a decline in US share markets in August, confirming the typical pattern of the Australian dollar falling when prices in equity markets drop.
Meanwhile, the performance of China’s economy plays a significant part in Australian dollar movements. China is currently battling soaring unemployment, particularly among young people, falling land prices and a housing crisis, among other ills.
As Australia’s largest trading partner, both in terms of imports and exports, any slowdown in China means lower sales of our commodities and other goods and services and less investment in property and business.iii
How the dollar affects us
There are advantages and disadvantages of a falling Australian dollar. On the plus side, our exports will be more competitive because our customers will pay less for our goods and services compared with those produced overseas. Conversely, imported goods will be relatively more expensive.
There could also be an increase in tourism – the cost of travel in Australia will be cheaper for those coming from overseas. Unfortunately, those planning an overseas trip will need to find a significantly greater pile of Australian dollars to pay for airfares, accommodation and shopping.
For investors, it is a useful exercise to review the currency’s effect on your portfolio.
For example, if you’re invested in Australian companies that rely on overseas earnings, look at how they handle their exposure to the currency risk. A lower dollar is good news for those with overseas operations and those that export goods. On the other hand, those that need to buy in components or products from overseas may suffer.
In any case, have a chat to us to look at the best way forward in these uncertain times.
