Take advantage of foreign currencies drops

Many of us would frequently come into contact with foreign currencies, whether it is for holidays, children’s overseas education, property investment etc. It serves as a medium of exchange to facilitate transactions, as a store of value, and as a unit of account.

Foreign CurrencyPurpose
US Dollars (USD)Education, Travel
Great Britain Pounds (GBP)Education, Travel
Australian Dollars (AUD)Education, Travel
Euro (EUR)Travel
Swiss Franc (CHF)Travel
New Zealand Dollars (NZD)Travel
Japanese Yen (JPY)Travel
Korean Won (KRW)Travel
Thai Baht (THB)Travel
Taiwan Dollars (TWD)Travel
Hongkong Dollars (HKD)Travel
Chinese Renminbi (RMB)Travel
Malaysian Ringgit (MYR)Travel, Groceries, Petrol

The currencies as we are familiar with in the above table are fiat currencies, whose value is backed by the government that issued it. This differs from commodity money whose value is underpinned by physical assets such as gold or silver.

The United States, for example, abandoned the gold standard in 1933, and completely severed the link between the dollar and gold in 1971. Prior to that, individuals as well as foreign governments could exchange USD for gold.

Buy Low, Sell High

Buy Low. Buy even more, Lower

The above is a commonplace advice applicable in investment and everyday life. Rationally, how well do people do for foreign currencies?

The recent sharp drop in GBP in July 2019 to as low as $1.6832 worth sparked some positive behavior – heavy buying by overseas students studying in the United Kingdom to save on school fees and daily expenses.

For travel however, people may be less rational. FX (or foreign exchange) rates may be the last thing on their minds when considering which country to visit. I have not heard yet of anyone changing their destination of travel just because the exchange rate is disadvantageous to them.

Personally however, I take into account currencies fluctuations and plan my travels around countries whose currencies are significantly weaker. In other words, the motivation to score a steal.

Countries whose currencies have risen against SGD

1 SGD in exchange for 22.1578 THB (Thailand)

1 SGD in exchange for 22.3850 TWD (Taiwan)

Thailand and Taiwan, while still being one of the top destination choices from Singapore, are increasingly getting more expensive due to their stronger local currencies. For example, the Thai baht has soared against the U.S. dollar this year, jumping more than 5% against the dollar since the beginning of 2019. On a year-to-year basis, it has bounded even higher — nearly 8%.

All other things being equal, the stronger THB and TWD have made these 2 destinations less attractive to me for this and next year.

Countries whose currencies have fallen against SGD

1 SGD in exchange for 1.0758 AUD (Australia)

1 SGD in exchange for 0.5790 GBP (United Kingdom)

1 SGD in exchange for 0.6614 EUR (Europe)

1 SGD in exchange for 1.151 NZD (New Zealand)

1 SGD in exchange for 5.1611 CNY (China)

The weakening Australian dollar comes amid heightening US-China trade tensions. China is Australia’s single largest export market and anything that might dim the outlook for Chinese trade is taken as a negative for the Aussie. Chinese Yuan is inevitably affected as well from the trade tensions. Amid uncertainty over Brexit, at least until 31 Oct 2019, Pounds remains on rocky ground and is predicted to fall further.

The honest fact is that the more dire the economic climate is for these countries, the better positioned Sing dollars is to our advantage. Countries like Australia, United Kingdom, Europe and even China are at present more attractive to visit due to the weakness in their currencies. It would definitely be financially prudent for me to travel to these places instead in the near future.

Even when I am not travelling nor have plans to use them in the near future, I still hold a low portion of my cash in foreign currencies. I usually buy them as a hedge for the distant future or even sell them when the reverse price movement happens. My portfolio includes the USD, JPY and AUD which has historically presented a cyclical relation with SGD over time.

Do note however, of the foreign exchange risk. The currency drop today, might fall even more tomorrow. Also, you gain no interest on the currency when you hold them as cash.

Do you buy in some form of foreign currencies for the future as well?


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