Article Image 26098

The five main factors that shift a currency's value

The value of currencies is usually far from stable, often shifting by pretty significant amounts from day to day. There are plenty of factors that influence these movements, and getting to know a little more about them can help you make informed decisions about your international money transfers. That's why we've put together this run-through of the five main reasons your euros, dollars and pounds are worth more – or less – one day than they were the day before.

1. Inflation

Increasing domestic prices indicates a nation's currency is getting weaker relative to other countries, shifting its exchange value downwards. A handy reference point is that if the price of a loaf of bread or pint of milk is rising in that country, the value of its currency is probably falling.

2. Interest rates

Low inflation and a strong currency typically go hand in hand with higher interest rates. High rates drive currency value up because they promise good returns to investors and lenders, encouraging people to buy up the currency, increasing its value. It's worth taking a look at the interest rate set by the central bank, which determines all the others, including ordinary people’s mortgage rates. If this ‘base rate’ is high, the currency will also probably be shifting upwards in value.

4. Political stability 

This is one of the easiest currency indicators to spot. Investors like to know their money’s safe, so the more stable the country, the more investment it’s likely to see, contributing to a higher currency value.

4. Current account strength

If a country is spending more on imports than it’s getting in from exports, it will have what’s called a ‘current account deficit’. It’s a lot like going overdrawn on your own current account, and unless the country has substantial reserves, means it will need to borrow from other countries. This generally reduces its currency’s value.

5. Debt levels

Last on the list is the amount of public debt a country has. Lots of public debt leads to inflation, especially if more currency is being put into circulation to cover the debt. Really high debt of over 60% of GDP will also be a big turn off for foreign investment, further decreasing the value of the currency.

Comparison tool

Nicola O'shea

Was going to use our local Post Office until I realised by using your comparison chart how they're loading the exchange rate. You've given me an extra $50 AUD by using Xendpay

Xavier Pasquini

This is a good way to help people on choosing how to send their money online!!!
Repatriating funds - sending money back home

REPATRIATING FUNDS – TRANSFERRING MONEY HOME

When returning funds, profits or receipts from overseas back to your home country, the process can seem daunting. It is just a question of understanding the relevant regulations and tax rules. At The Money Cloud, we show you how to get it right first time and how to maximise your money.

washington hotel

A GUIDE TO INVESTING IN AN INTERNATIONAL HOTEL BUSINESS

As an overseas investor, regardless of the method of hotel management you will decide to opt for, you will be exposed to what are often volatile exchange rates, whether paying for your investment, running costs and overseas supplies and hotel management employees. Read the definitive guide.

Market Insights

Sign up for our newsletter.

Thank You for subscribing to our Newsletter

You have successfully signed up to our Newsletter