Interest rates

Aussie dollar outlook uncertain with US interest rates on the move

The Aussie dollar has been on a bumpy ride since the coronavirus first hit our shores, putting those planning to travel overseas later this year in a dilemma over whether to lock in their rates. Exchange now, or wait in hopes of a better deal.

In March 2020, the dollar briefly fell below US60¢ as fears about the impact of the pandemic on global economic growth were at their height.

The Aussie dollar has been on a wild ride during the pandemic Credit:wayne taylor

The currency tends to perform better in times of strong global growth, as this tends to push up the prices of the commodities we export.

The dollar climbed to over US77¢ early last year, but has since fallen back to around US70¢.

Besides global growth and commodity prices, the other major factor that determines the value of our currency is the difference in interest rates between Australia and overseas countries, especially the United States. .

Markets expect the US Federal Reserve to hike interest rates aggressively. Some analysts predict up to five 25 basis point rate hikes before the end of the year.

However, the Reserve Bank of Australia is sticking to its guns, saying it is unlikely to start raising our interest rates until 2023, at the earliest.

Rate hikes in the United States make that country a more attractive destination for international capital flows, which could push up the value of the US dollar against other currencies, including the Australian dollar.

Joseph Capurso, head of international economics at Commonwealth Bank, says there are many factors at play that determine exchange rates.