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Personal Finance

4 Factors That Can Affect Exchange Rates

It’s frustrating when you’re migrating to a new country, but the exchange rate isn’t on your side. You want to get the most out of your money, but converting it at the wrong time could leave you a lot worse off.
Although it’s impossible to predict exactly what the exchange rates will be at any given time, knowing the factors that can affect it is still useful. That’s why we’ve put together four of the biggest influences on the exchange rate.

Interest Rates

As a country’s interest rate increases, so too does its currency. This is tied to the fact that foreign capital is often attracted by this rise because lenders get boosted rates. As that attraction goes up, the exchange rate generally follows suit. Obviously, it’s a similar situation with the reverse, with low-interest rates often bringing down currency conversion with it.

However, this isn’t set in stone. It’s entirely possible for the exchange and interest rates not to follow a similar pattern if they’re affected by outside influences. This might include the impact of inflation on the country.

Inflation

Speaking of inflation and what can affect exchange rates, another factor to consider with exchange rates is how high or low inflation is. Countries with lower inflation often see their currency appreciate in value due to the more gradual increase in pricing of goods and services. Those with high inflation see the opposite effect, with the currency often losing its value.

Again, other factors can affect this, so there’s no guarantee that low inflation will always have the same outcome on the exchange rate.

Current Account

Essentially a country’s bank account, this consists of elements like imports and exports to determine whether more or less is being spent than being made. If a country spends too much on foreign trade than it’s earning, it ends up in a deficit. Understandably, this affects the exchange rate, reducing it until the exports start to exceed the imports.

It can take time for this to happen, something you might not have much of when emigrating. While there’s not much you can do to move things along, you can turn to a currency broker for your exchange rate needs. Their ability to save up to 4% on transactions means you could avoid losing some money when the exchange rate isn’t in your favour.

Political Stability

When a country is politically unstable, it puts off foreign investors. This leads to a loss of confidence in their currency, which obviously impacts the exchange rate. Countries that are more stable and less at risk of political deterioration reap the benefit of this, as they then attract that foreign investment. If their economic performance is strong, and they possess competent leadership, there’s a likelihood of this being reflected in the exchange rate.

These aren’t all the factors that influence how a country’s exchange rate fluctuates, but they are some of the most impactful. It might help to know where your country, as well as the country you’re emigrating to, stands in these areas. That way, you might find it easier to decide when to go about making your conversions.