Australians have, and are, cheering the Australian dollar higher and higher against major currencies, notably the United States dollar, with parity celebrations breaking out last week. However, a select few Australians in the expatriate community may not be donning party hats just yet, and in fact may be considering leaving expat city favourites such as Dubai, in the United Arab Emirates.
A major drawcard, besides the reduced tax rates of cities such as Dubai, has been the payment of salaries to expats based on foreign currencies, usually the US dollar, which is normally stronger than the Aussie dollar. With the massive strengthening of the Aussie dollar against a weaker greenback, those who have previously enjoyed the opportunity to exchange a US dollar to invest or save in Aussie dollar assets, such as term deposits, property and shares, are rethinking sending money home.
Essentially, over the past 12 months, the AUD unit now costs 10%-15% more to buy with USDs or UAE dirhams (AED). In fact, if you’ve been earning tax-free money for five years, and now face a 15% depreciation in your exchange rate, that is similar to incurring a tax you previously didn’t have to contend with. Paying off that Australian mortgage in Sydney, buying some BHP shares for a rainy day, or helping out mum and dad, has now become a full-blown financial analysis of the largest financial market in the world.
According to Craig Holding, Treasurer of the Australian business council in Dubai, the high employment rate back home might just end up being a deciding factor for many Aussies to head home. “With the Australian economy operating at almost full employment (95%), if the same job came up with similar after tax money I think someone who is keen to go home (to Australia) would jump considering the current situation.”
On the flipside, for those expats that have indeed saved for a rainy day and have built up treasure chest of Aussie dollars, the news is the reverse.
Marc Geary, Partner at Samurai Global Investments, says: “One client of mine recently locked in a 12-month forward rate for his USD mortgage, and will pay this with AUD. Meaning, he enjoyed a stronger USD for some years, had the exchange rate in his favour, now, is using those saved funds and higher AUD to pay down debt in USD over the next 12 months.”
But that’s not all. Geary continues, “The fervor around USD/AUD parity has sparked client ideas and we’ve had a few Australian’s inquire as to the mechanics of borrowing in USDs and investing into Australian assets such as shares because of the lower interest rates.”
Either way, the current climate calls for a sound strategy say the experts. Pay down debt, Geary says. “It makes sense for expats to extinguish any lingering foreign debt they may have.”