Soaring Australian dollar is a boon for tourists

The Australian dollar has emerged as a safe haven for global currency investors looking to diversify outside the troubled eurozone — and a boon for tourists venturing offshore.

The Australian dollar has emerged as a safe haven for global currency investors looking to diversify outside the troubled eurozone — and a boon for tourists venturing offshore.

Strong demand has sent the currency soaring to a 27-year high against the British pound and a 22-year high against the euro and its precursor currencies.

The Australian dollar rose to 67.96p on Tuesday night – its highest level since 1985 — and E0.8181.

Against the greenback it reached $US1.045 early yesterday, but closed at $US1.1039, up slightly on Tuesday.

The dollar-pound exchange rate has almost doubled in the past three years, a major bonus for Australians flying the kangaroo route to England.

Australians heading to London for the Olympic Games in July will be getting much more bang for their buck than in recent years.

The prices of hotel accommodation, enjoying a pint in a pub, shopping on London’s famous Oxford Street and visiting the city’s tourist attractions are all now much cheaper.

“Certainly, from a travelling perspective, with the Aussie going considerably well, the UK would look very, very attractive, as would Europe,” HiFX trading director Mike Hollows said.

The rally has unfolded as European officials struggle to find a solution to the region’s worsening troubles.

Standard & Poor’s decision to cut the sovereign credit ratings of nine nations including France has intensified fears, and the euro has been weakening against most major world currencies as investors shift out of the region.

The Australian dollar has been a beneficiary of the trend because of the economy’s relative strength and higher interest rates compared with the rest of the world

The Reserve Bank’s official cash rate is currently 4.25 per cent — the highest among developed economies.

“Primarily you can argue that the Australian dollar’s benefited considerably from the commodity boom we’ve seen since the middle of 2008,” HiFX trading director Mike Hollows said.

“Sterling, by virtue of its proximity and relationship with Europe, is clearly being pressured.”

BNP Paribas economists said in a research note, that investors also favoured the Australian dollar because of its connections with the powerful Chinese economy.

The December quarter GDP data published on Tuesday showed the Chinese economy grew by 8.9 per cent annually, defying expectations of a significant slowdown.

“With China data effectively leading markets to price out expectations of a hard landing, prospects for the Australian dollar remain solid, especially with both investment and consumption the key drivers of the Chinese economy,” BNP Paribas says.

Commenting on yesterday’s currency trading, NAB currency strategist Emma Lawson said: “Generally better sentiment regarding both global growth and the European sovereign debt outlook is allowing a risk rally.”

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Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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