Starting the year off… weak: How the Aussie dollar crash could affect you

The Australian dollar is having a rough start to the year and it could mean bad news for everyday Aussies.

If you've been following the news over the last week or so, you'll have heard that the Australian dollar is doing… not so well.

It dropped to a 5-year-low against the US dollar last week: $1AUD now buys around $0.62 USD. For those of you who don't eagerly follow along with the price of United States dollar, that's 7 US cents less than in September.

Ok, ok, 7 cents doesn't sound like much, but when you're spending money overseas or importing goods, that makes a huge difference.

Let's take a look at what that means for you.

Overseas money transfers aren't going as far

It's not just USD, the Aussie dollar has dropped against the British pound and the Euro too. If you're sending money overseas any time soon, you should double-check if your money is going as far as it normally does.

Let's say you're transferring $500AUD to a family member in the United States. Just 4 months ago that would have given your relative about $345USD. Today it would give them $312USD.

"Transferring money overseas isn't going as far as it did a little while ago, but we don't always have the luxury of picking and choosing when we need to do it," says Finder's money expert Richard Whitten.

"In the meantime, compare conversion rates at different money transfer providers and check for any fees to minimise as much of the cost as possible."

Travel to the US or Europe is more expensive

The biggest problem here is that if you're travelling or planning to travel, your Australian money will be worth less.

"With the Aussie dollar falling it's becoming a very expensive time to travel, particularly to the US or UK," says Finder's banking expert Alison Banney.

"If you're heading overseas in the next few months make sure you re-assess your budget, as everything from eating out to accommodation will now cost more. It's always a good idea to choose a debit or credit card that charges no international transaction fees - but this will be even more important now."

Borrowers may be waiting longer for a rate cut

A weak Aussie dollar doesn't just impact your travel plans. Its effect on the economy could mean we're waiting a little longer for interest rate cuts.

"Inflation has been the big economic story of the last few years, and interest rates have been higher in order to try to bring it down. We're only just starting see inflation reach a more comfortable level," says Whitten.

"But a weak Aussie dollar could derail those efforts. If foreign imports cost us more (because the dollar doesn't go as far), this pushes inflation up. And that means interest rates might stay high for longer."

Your investments might be worth more

The weak Aussie dollar might be concerning for anyone travelling or hoping their interest rates are going down, but there is some good news in here.

"While a weakening Australian dollar makes overseas spending more expensive, the inverse is actually true when it comes to investing in global markets," says Finder's investments expert Tom Stelzer.

"Say you invest $1,000 in the US stock market. If stock values (which are denominated in US dollars) go up 10% and USD gains 5% on AUD at the same time, you'd actually be getting a 15.5% return in AUD.

"A weak Australian dollar also makes our exports more attractive, which could benefit the resources and mining companies on the Australian stock market."