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Foreign Exchange for Expats in Australia

Submitted: August 2013

Australia’s official currency is the Australian Dollar (A$ or AUD). The autonomous Reserve Bank of Australia (RBA) is responsible for monetary policy. Australia does not impose any exchange controls, nor are there any restrictions on the holding of foreign currency.

Exchange Rate Regime

The Australian dollar is a freely floating currency. A few other currencies in Oceania are pegged to or somewhat connected to the Australian dollar. Sharp exchange rate moves may be tolerated by the RBA to some extent.

Monetary Policy

The RBA has a mandate to maintain financial and currency stability, as well as to promote full employment and economic prosperity. Inflation-targeting is part of the RBA’s commitment to financial stability, and the RBA targets an inflation rate between 2 and 3%.

Australia has loosened its monetary policy since 2008, like most countries in the world. This has led to the RBA lowering its interest rates from the 2008 peak of 7.25% to 2.75% in July 2013. In other words, Australian monetary policy is concilatory but much less radical than its European, US or Japanese counterparts.

Australian savers are not subject to negative real interest rates, although real interest rates have gradually fallen over the past two decades. See Investment for Expats in Australia.

Dovish monetary policy is in line with the current international trend. As the RBA is not as radical as its foreign counterparts, this may put upward pressure on the Australian dollar. You might like to check how the RBA’s policy interacts with that of your home country, as well as how the markets price it.

Exchange Rate History

Australia is a large commodity exporter and it has recently experienced a mining boom, though this was reckoned to have peaked in 2013. The Australian economy has remained strong while tolerating running persistent current account deficits (between 2 to 6% of GDP). This factor may weigh on the exchange rate.

However, the Australian dollar has substantially appreciated over the past decade. Interest rate differentials have been a key driver behind this move, although exchange rates may be influenced by many other macroeconomic factors. Hence, Australia may be a very expensive country from the point of view of many expatriates.

It has been reported that the Australian dollar has fallen like a stone since April 2013. Typically, the Australian dollar takes a long time to rise, but is quick to fall. As of August 2013, there are no signs of relief for the Australian dollar although it is still at high levels by historical standards.

 

 

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