What a difference a year can make. In November 2008, the global economy was rocking on its financial foundations, no one knew what would happen next, and every currency in the world, including the Australian dollar, was falling in value against the “safe haven” U.S. dollar.

Now, with the economic recovery underway, the world’s manufacturers want commodities, including the coal, iron ore, and others supplied by Australia. The commodities boom has fed into the Australian dollar, with some marvelous results for those bitten by the travel bug.

A year ago, one Australian dollar (AUD) purchased 65 U.S. cents. Now it buys 93 of them, a 40% climb. That means travels to U.S. destinations are 40% less expensive than they were twelve months ago—signalling for many that it’s time to bring out the frequent flyer credit card for a jaunt over the Pacific.

For those not in the mood for the States, the strong AUD is making other destinations more affordable, as well:

•    The Hong Kong dollar is tied in value to the U.S. dollar, so Hong Kong is also 40% less expensive now than a year ago.
•    Last year, the AUD bought 44 U.K. pence. It’s risen 27% and now nets 56 pence.
•    Fancy the Eurozone? Last year the AUD bought 50 Euro cents. It’s risen 24% and now buys 62 cents.
•    The AUD has also gained 30% against Japan, Singapore, and Thailand, increasing overseas purchasing power for Australian visitors there.
•    The economy of Canada is also based on commodities exports, but its deep trade connections with the U.S. are currently more of a hindrance than otherwise. The AUD has risen 20% against the Canadian dollar and is currently within three pennies of parity.

The one currency the AUD has not gained against is the New Zealand dollar, which is also heavily dependent upon commodities exports and also benefitting from the boom. The AUD still brings around $1.25 New Zealand dollars.

Some of this AUD strength is, of course, more a measure of the weakness of its greenback counterpart, the U.S. dollar (USD), which today fell beneath parity with the Swiss franc. Although predicting future exchange rates is a perilous activity, pundits currently believe the USD could soon fall beneath parity with the Canadian dollar as well and, after that, the AUD. The AUD last reached parity with the USD in 1982, before the Australian currency was allowed to float freely on international markets.

Rising Australian interest rates are also attracting foreign investors, who certainly aren’t making much off their capital in U.S. markets paying 0.0–0.25%. For investors looking to score off the Asian recovery but not willing to risk Chinese markets, the Australian commodities boom is a good play, and that influx of foreign capital will continue to drive the AUD higher.

For those who can’t quite fit an overseas trip into their holiday schedule, there’s no reason to rush. Economists are predicting the commodities boom will continue, which with rising Australian interest rates, should keep the AUD very strong for a year or more.

Source: smh.com.au