With the Australian dollar riding high, plenty of overseas destinations favoured by Australians are exceptional value. America is the top of the list, with the US now more than 40 per cent cheaper than it was a year ago. The Aussie was buying 65 US cents a year ago and is now buying 93 US cents. Hong Kong's the same, which should not be surprising as the Hong Kong dollar is pegged to the greenback.

Sydney Morning Herald - 25th Nov 2009 - John Collett

With the Australian dollar riding high, plenty of overseas destinations favoured by Australians are exceptional value. America is the top of the list, with the US now more than 40 per cent cheaper than it was a year ago. The Aussie was buying 65 US cents a year ago and is now buying 93 US cents. Hong Kong's the same, which should not be surprising as the Hong Kong dollar is pegged to the greenback.

Britain, too, is much cheaper. A year ago the Aussie was buying 44 pence and is now buying 56 pence - a 27 per cent increase. And things are looking up for those wanting to visit the eurozone, with the Aussie buying 62 euro cents compared with only 50 euro cents a year ago - a 24 per cent increase.

Currency exchange rates are notoriously difficult to predict. But if anything can be said with confidence, it is that the Aussie is a commodities currency. That means when the world economy is humming along, demand for resources is strong and so is the Aussie. But when the world economy is in a funk, our currency, too, gets down in the dumps.

A year ago, pessimism ruled as the outlook for the world economy was at its bleakest and so was the mood hanging over the Aussie. Back then most overseas destinations were expensive. But with confidence returning, the Aussie is riding high.

Of course, the strength of the Aussie is mostly to do with the weakness of the US dollar. But rising interest rates in Australia, starting from a higher base than other countries, are making Australia an attractive destination for overseas capital. The strengthening Aussie is increasing the attractiveness of Japan. The Aussie buys Y83, compared with Y64 a year ago - a 30 per cent increase in purchasing power.

And our currency is buying more in China - about 6.4 Chinese yuan, compared with 4.4 a year ago. The Aussie stretches about 30 per cent further in Thailand and Singapore than a year ago and buys about 10 per cent more in Indonesia.

The Aussie is unchanged against the New Zealand dollar, continuing to buy about $NZ1.25. New Zealand, also with a commodity economy, is benefiting from good prices for "soft" commodities such as dairy products. It is the same story with other commodity currencies, such as the Brazilian real and the South African rand, which have kept pace with the rising Aussie.

The Aussie is buying about 97 Canadian cents, about 20 per cent more than a year ago. Canada, too, is a commodities economy but is greatly influenced by the US, its biggest trading partner, which accounts for the majority of capital moving in and out of Canada.

There is no rush to take advantage of the strong Australian dollar, because most economists expect the Aussie to stay high for the foreseeable future. Many economists say it will reach parity with the US dollar and some expect it to reach $US1.10.

The chief economist at AMP Capital Investors, Shane Oliver, says it could reach $US1.10 next year as Australia's terms of trade (the ratio of export prices to import prices) continues to improve. Since the Aussie was put on a floating exchange rate in late 1983, it has never reached parity with the US dollar.

Australia is attractive to foreign investors because of how it has come through the global financial crisis and how it is benefiting from its links to China. It is a safe way for international investors to get exposure to the fastest-growing part of the world. With the resources boom set to continue, the Aussie could be riding high for a long time to come.