Purchasing US dollars now for a round the world trip in 2014

[drsmithy]

About 6% interest income a year you are willing to give up means you are already taking a huge gamble on the rate collapsing over the next 2 years, ie in real terms you will be settling for a rate less than 90c to the dollar. To me that is a huge gamble

What do you think is going to change over the next 2 years that will cause the AUD to collapse?

Mining boom collapsing ?
Real estate bubble popping ?
Desperate cuts to already-low interest rates in an attempt to prop up the above ?
RBA finally giving in to the currency war the rest of the world is waging and starts printing AUD ?
GFC2 sending the world fleeing to the world reserve currency (USD) ?

The AUD is notoriously the world's bicycle when it comes to currency trading, and is grossly overvalued by any fundamental measure.

My advice to the OP if he wants to hedge would be to open some foreign currency accounts in USD, EUR, etc (depending on the trip destinations). Heck, given the astronomically high AUD, it's probably not a bad idea just as a general wealth-preservation strategy.

EDIT: Just occurred to me I might need to expand on foreign currency accounts. These are just regular accounts at a bank (all the major banks will do them) that are denominated in a foreign currency. Ie: as the exchange rate with AUD changes, so the dollar value of those accounts will change.

The downside is you won't earn any interest, since interest rates in most of the rest of the world are effectively (if not explicitly) 0%.

 

[melaus]

Well good luck with that theory. The Aussie is a plaything of speculators and hedge funds and will plummet like a stone if it suits them. Just a matter of when.

Too true, too true, too true!

The part I have bolded above has taught me well over 40+ years of International Travel.

Burnt quite a few times by not locking in a few thou' when the poor little 'A$ Battler' looked good, well reasonable, for a while.

 

[tassietiger]

Have to agree 100%

Mining boom collapsing ?
Real estate bubble popping ?
Desperate cuts to already-low interest rates in an attempt to prop up the above ?
RBA finally giving in to the currency war the rest of the world is waging and starts printing AUD ?
GFC2 sending the world fleeing to the world reserve currency (USD) ?

The AUD is notoriously the world's bicycle when it comes to currency trading, and is grossly overvalued by any fundamental measure.

My advice to the OP if he wants to hedge would be to open some foreign currency accounts in USD, EUR, etc (depending on the trip destinations). Heck, given the astronomically high AUD, it's probably not a bad idea just as a general wealth-preservation strategy.

EDIT: Just occurred to me I might need to expand on foreign currency accounts. These are just regular accounts at a bank (all the major banks will do them) that are denominated in a foreign currency. Ie: as the exchange rate with AUD changes, so the dollar value of those accounts will change.

The downside is you won't earn any interest, since interest rates in most of the rest of the world are effectively (if not explicitly) 0%.

 

[rtts]

Comments at this thread have lots of wisdom and, in my opinion, some worrying about minor things. I am US-Aus dual citizen who has been travelling frequently between both countries (as well as other countries) for 40 years and had base in both countries for 20 years. Admittedly, that is different from tourist or even business travel albeit for lengthy periods. Our overall philosophy is not to worry about exchange rates, exchange as little as possible, keep what we earn in each country in that country . . . . and when we need to transfer large amounts, use Ozforex (McQuarie Bank subsidiary with offices in Sydney, Toronto and London) which operates seamlessly at fees a fraction of what banks charge. Even cheaper rates with Interactive Brokers (Greenwich Connecticut, USA), but this is for big time rollers and there is maintenance fee for low usage. But back to the topic of currency exchange for tourists:

1. Opening US financial accounts from outside US can be difficult (unless done through your Australian bank). Indeed even a US citizen cannot open or even change US accounts without being physically located in US due to various US regulations, some old and some new.

2. Playing currency exchange rates is a loser's game unless skilled in the area or possibly currency hedging investments in that currency. Try this game: keep track of every time you travel overseas with a note of the then exchange rate and your opinion where the rate will be during your trip and when you return. You'll be lucky to break even and even then it will be random. Add in the transaction costs and its a loser. You may have latched onto a bona fide factor affecting the exchange rate, but some other overarching factor comes out of nowhere. Those ads for making big bucks trading forex make money only for a lucky few and mostly for the broker.

3. If you can, open a US account with a US bank or broker offering a cash-back card for up to 2%. E.g., Fidelity (large American mutual fund/broker) has an AMEX card with 2% cashback. I have a 2% cashback VISA card with Schwab (large discount broker) which they fobbed off to Bank of America and BofA reduced the cashback to 1%. But that's better than an Aus card which as far as I can see offer no cash back. Further, my BofA card has no fees of any kind, including no fee for use outside the US (Aus cards are notorious for adding fee for use outside Aus) There still is an exchange rate, but Visa'a rate isn't too bad. 2% or even 1% cashback is better than the value of any frequent flyer program points, especially with the devaluation of FF over past few years. Plus you get the rewards in cash without having to worry about unused buts or points expiration.

 

[infinity]

Remember the terminology

The pacific peso from 2001!

Granted its over 1/1 now

History shows that AUD/US is stairs up and elevator down for the AUD

Just watch when stock markets are not jittery, people put money into AUD, when the slightest sign of grief appears, its sell AUD and off to YEN/USD

Eurozone and GFC are benchmarks about this

Settle for peace of mind

If you are not an FX player, sell AUD buy USD at 1/1/ or better and take peace in planning your trip.

Happy days for a great adventure!

 

[RAM]

In my experience NO.

Just my opinion, I think the days of extreme volatility in exchange rates may be in the past, Australia has a bit of a safe haven status these days, which was not the case when the rate plunged to 60 cents at the beginning of 2009.

Statements like that always make me look for the exit.

Business cycles are just that cycles - there are peaks and troughs. The AUD is first and foremost a growth/commodity proxy. When world growth is above 4% (Dev & UnDev) or rising then the AUD is the place to be. When world growth is slowing (or thought to be) the AUD is on the nose.

This simple rule has worked since 1984 (as long as one's greed doesn't get in the way). That is why certain international equity funds outperformed not due to their stock picking but their hedging back into the AUD, and why other funds underperformed so badly.

2009 was a scare on Chinese growth. While Europe was not as far gone as it is now. Western debt levels are significantly worse so I think its a bit early to make calls on "This time its different..."

On buying USD now you can try talking to WBC Treasury (or another) if the amount is over $20k (and you talk nicely) you may be lucky and ask about doing an AUD forward (they may ask you to deposit the same amount in a term deposit), or try selling an AUD future through ComEx but that is for $100k multiple but is lowest cost way (see contracts available for Dec 2013)

AUD/USD

Or look at it like a business - if you are happy to lock in a certain profit margin now and have no uncertainty (guaranteed outcome) then do it. Or you can hope things go your way but don't forget Murphy's out to get you.

 

[manlai]

We (wife and I) are HSBC Premier customer. Not for everyone and there are rules around it - but we have a USD bank account in HSBC USA, a French Bank Account (euros) in france and our Aussie accounts. Worthing looking into if you are able to access it. We never pay a fee anywhere in the world anymore. And all the bank accounts are local to the country - so when we leave we take the coin we have left over and deposit it right back into the bank

 

[manlai]

And one more thing, we transfer money to the euro or US account before we travel and get excellent rates - without fees. I think while most people have been buying euros at travelex for 0.8011 we have been getting 0.845. very tiny spread.

 

[BjJames]

My advice is........

Why bother?

(1) You can speculate on whether the vaue of the AUD (or whatever you wish to convert to, and hold) is going to get better or worse. You might win, you might not. There are no guarantees!

(2) You can chase all sorts of products and facilities, many of which have transactional costs.

(3) Are you really going to be converting amounts so are so large that there is a true worthwhile "saving"?

(4) And are you going to agonise over it, worrying, spending (wasting!) time doing calculations, and looking for answers (such as asking questions here)?

Why not just go with the flow, enjoy life, maybe you "win", maybe you "lose" -- but hey, life is for living !!!

You could probably "lose" what you think you might have "saved" by buying some stupid souvenir somewhere.

Get out and enjoy yourself !

 

[sammm]

If you want us dollar exposure without the hassle of bank account etc, use an etf with ticker usd.
US Dollar ETF | BetaShares

a word of caution on nything like this, do not do this unless you know what you are doing.

 

[kempvet]

Well good luck with that theory. The Aussie is a plaything of speculators and hedge funds and will plummet like a stone if it suits them. Just a matter of when.

The Aussie is also an area where sovereign funds are also now dumped, not so even a couple of years ago. But your point is well taken and historically correct, just think that the volatility may not be as severe as in the past.

 

[kempvet]

Getting a SSID isn't as hard as people thing, it's just some pen and paper pushing. They aren't any use for travel though really, and it is too much effort for the occasional traveller (I'd only bother if you planned on spending a significant amount of time, regularly, in the USA).

Please send me a PM if you have any tips on this, I dragged myself all over LA and spoke to dozens of departments and people, found it impossible to get a SS card (not for work), even though I travel to the US 8 times a year and spend about 4 months there and have a young US daughter to support as well. The best I could do is apply for a ITIN (Individual tax ID number) and after 2 years of filing US tax returns may get a credit rating. If there is a short cut to a SSID, please let me know.

 

[geocro120122]

I am going through the same process and it looks like the AMEX Global Express Travel Card seems to be the go if you want to lock in funds at a particular rate and be able to withdraw cash overseas. As I understand it it, the funds don't expire and they don't charge inactivity fees etc which the others seem to do? It would be great to know if anyone has used them and found them worthwhile, I know they are limited in currency types though.

I have a business FX account with AMEX for sending sums overseas where you can't use a credit card (my 28 Degrees card handles credit card transactions) and I have found their rates are so much better than any of the banks.

I have also found our bank won't let you withdraw actual US Dollar notes out of the US Dollar accounts, you can only use it for making payments overseas or in US dollar amounts.

I must also say overall that the rate you get never seems to be close to the official rates you see quoted.

Don't forget to get hold of a 28 Degrees card, we have two separate accounts and supplementary cards on each others so that we can load up one account with funds and use the main and supplementary card for each of us to have our own card to get cash and use the other account's main and supplementary cards for each of us to have cards for credit card transactions. Works a treat!

 

[aussiedom]

I've looked at this issue as well - there is no perfect solution. For example the travel cards CBA and others offer can save you the one-off fee per ATM withdrawal as well as the 3% 'currency conversion' fee but near as I can tell they still screw you to some extent with a fairly poor exchange rate.

There are arrangements between the major AU banks and foreign partners - for example (at least a few years ago) Westpac had a thing with Barclays UK and Bank of America where using linked ATMs did not incur the usual ATM fees per withdrawal that would normally be charged overseas.

If you really, really want a US bank account, it can be done from here as long as you are heading there for a trip or have made arrangements with an outfit like myus.com to get mail sent to you from a US mailing address. Lack of a Social Security number is not necessarily an obstacle.

When we first went to Hawaii, my wife badly wanted a Kindle e-reader. In those days (2009) there were two impediments for us Aussies in acquiring one. First, they wouldn't ship them outside of the USA. So we had it sent to the condo we'd rented on Maui via vrbo.com. The other barrier was that your Amazon account had to have a US-based credit card linked to it. I found netspend.com. They required me to email them scans of my AU passport but apart from that were quite happy to issue me a US Visa Debit card, which I also had shipped to our condo on Maui (with agreement from the owners).

I used this Visa Debit card extensively throughout our Hawaii trip in 2009 and our Alaska trip in 2010, pay at the pump at gas stations, ATM withdrawals etc. The only drawback was that the only way to load it up from here was via Paypal (with the customarily lousy exchange rate) although it can be recharged whilst in the USA at various stores.

I still use the account from time to time, although the physical card itself was stolen along with my wallet on a train in Naples last year. Using my account I can send money to any US bank account if I need to (the USA is well behind Australia on things like BPay, bank transfers etc).

Next time I'm going to the states for a few weeks or so, I will have replacement cards (mine and supplementary for my wife) shipped to our hotel, as we did in Hawaii last time.

Hope this helps,

Dom

 

[uvkelly]

Please send me a PM if you have any tips on this, I dragged myself all over LA and spoke to dozens of departments and people, found it impossible to get a SS card (not for work), even though I travel to the US 8 times a year and spend about 4 months there and have a young US daughter to support as well. The best I could do is apply for a ITIN (Individual tax ID number) and after 2 years of filing US tax returns may get a credit rating. If there is a short cut to a SSID, please let me know.

I am afraid you are correct (just got back from social security office) however a ITIN is quite simple (tell them you plan on gambling in Las Vegas and are planning on winning so need to be able to pay the taxes) to get and will allow you to open a US bank account. The problem is that it is best to be done in person, though e-trade can handle it or try using a US bank with a branch in Australia (Citibank is good they will open an account for you in another country they service if you are a "good" customer).
I have my main residence in the US and work in Australia and transfer money between countries using Xe.com which is great no fees but approximately 1.5% difference on spot rates and what you get. Beats the 4.5% or more of most other services.

Also if you watch currency markets closely, by fundamentals the $AU should be = $US0.85 but many major players are currently storing money in Australia (The swiss government comes to mind instantly) hence the Commonwealth Bank now being the third largest bank in the world.

Also for OP the easiest way to store $US at todays rates is if you have a friend in the US, you can buy pre-paid AMEX/VISA/Mastercards and work out the exchange between you. I do this for people regularly that I know very well, these cards are free of charge to purchase as long as your friend holds the correct account.