It is not just travellers who know that a strong or weak currency can be a blessing or a very expensive holiday!
Importers and exporters too, live and die at the hands of the foreign exchange market; their goods are either cheap or expensive depending upon the strength or weakness of their currency.
How does the exchange rate affect the prices of imported goods?
A change in a currency’s exchange rate can have a significant impact on the price of imports. Here are the two main ways in which exchange rate changes affect import prices:
- Cost of imports: When a currency depreciates (loses value) relative to other currencies, imports become more expensive. This is because a weaker currency means that more of the domestic currency is required to purchase the same amount of foreign currency needed for imports. As a result, the cost of imported goods and services increases. For example, if the exchange rate between the US dollar and the euro changes from 1 dollar = 1 euro to 1 dollar = 0.9 euros, US imports from the Eurozone would become more expensive.
- Price competitiveness: A depreciation in the domestic currency can make imported goods relatively more expensive compared to domestically produced goods. This happens because a weaker currency makes domestically produced goods cheaper for foreign buyers in terms of their own currency. As a result, consumers may shift their preferences towards domestically produced goods instead of imports, leading to a decrease in import demand. This can have an impact on the prices of imports if importers decide to lower their prices to remain competitive.
It’s important to note that exchange rates are influenced by various factors, including interest rates, inflation rates, economic performance, political stability, and market speculation. Changes in exchange rates can be volatile and unpredictable, making it challenging for businesses to forecast and plan for the impact on import prices.
Shoppers can take advantage of having a strong currency, as it means that products brought abroad in countries with weak currencies, are cheaper.
Is a rising currency a good thing for shoppers?
As a shopper, you can hope to take advantage of a rising currency in a few ways:
- Timing your purchases: If you expect a currency to appreciate (gain value) in the near future, you can delay your purchases of imported goods. As the currency rises, the prices of those imports will likely decrease in your local currency. By waiting for the currency to strengthen, you can potentially get more value for your money when you eventually make the purchase.
- Online shopping: With a rising currency, shopping online from foreign retailers can be beneficial. Look for websites that allow you to make purchases in the currency of the country where the retailer is located. As your local currency gains strength, you’ll be able to buy imported products at a lower cost in your own currency.
- Travel and tourism: A stronger currency can make international travel more affordable. Consider planning trips to countries where your currency has gained value. Your money will go further, allowing you to enjoy better deals on accommodations, dining, shopping, and entertainment.
- Take advantage of duty-free shopping: When traveling abroad, take advantage of duty-free shopping at airports or border crossings. With a rising currency, duty-free prices can become even more attractive as your purchasing power increases.
Remember that currency exchange rates can be volatile, and predicting their movements accurately can be challenging. It’s essential to stay informed about economic trends, keep an eye on exchange rates, and make informed decisions based on your individual circumstances.
The current global downturn means that the value of many of the world’s currencies has been turned on their heads. The Australian Dollar reached parity with the US Dollar in 2010, for the first time in its history, and it has been forecast that it could go as high as 1.70.
The Canadian Dollar, which used to trade in tandem with the US Dollar, is at about the strongest it has been in 30 years.
Many of the countries unaffected by the credit crunch are seeing their currencies up and those that are affected are seeing their currencies weakened. Of course, there are economic reasons why this is happening, but what it means for the international shopper is more choice and international bargains.
If you live in a country with a strong currency, shopping online in those countries with weaker currencies becomes cheaper than in the past. Now with the internet it is easy to click on a website anywhere in the world and buy whatever you like and it can delivered to you within a few working days.
Many shopping websites of Europe and America are open to people who live all over the world, in countries such as Australia and New Zealand, South Korea, Qatar and the UAE.
We are putting together a directory of the best shops with international delivery so that you can buy whatever you want (almost) from whomever you want anywhere in the world.