The Experts

Jim Vrondas
+ About Jim Vrondas


After completing a Bachelor of Science in Applied Mathematics and Statistics from the University of NSW in 1994 Jim began his financial markets career as an FX Trader in the Foreign Exchange department of the Bankers Trust Australia investment bank. His in depth understanding of FX markets and its drivers, coupled with subsequent experience as an educator, have made him a highly sought after commentator for businesses and individuals interested in currency markets.

With around 20 years’ experience in financial markets he is currently employed with OzForex as Chief Currency & Payment Strategist for the Asia Pacific region and is a highly sought after commentator on currency related issues. He regularly appears on Sky Business and ABC television and on an ad hoc basis on CNBC, Bloomberg and Reuters in addition to radio, leading newspapers and magazines across Asia Pacific.

Having held several key positions within the OzForex group since 2004 Jim has helped thousands of businesses and individuals seeking to manage all aspects of their foreign currency needs. He is passionate about ensuring all people, no matter what their level of experience, have access to unbiased information they can understand.


Keep a lid on travel expenses

Monday, September 08, 2014

With the Greenback expected to rise once the US Federal Reserve bank starts to signal higher interest rates, the cost of overseas travel for Australians is also likely to rise. If forecasts for a lower Aussie dollar prove to be correct and we see a depreciation over the next 12 months, then it may be a good time to lock the costs of some travel expenses away.

People planning a trip at the end of this year or at some point next year may want to think about starting to save with a travel card soon. So rather than taking the risk of loading the card just before you travel, when the Australian dollar could be weaker, it is possible instead to convert at today’s rates for future spending.

As an example: if you plan to travel to North America in 2015 and convert Australian dollars into US dollars now, at say 90 cents, it could mean a saving of more than 10 per cent should the exchange rate fall to around 80 cents as many are predicting.

Individuals can hedge too

While many businesses involved in international trade use hedging techniques to protect against adverse fluctuations in the exchange rate individuals rarely do. Securing an exchange rate for future travel is a hedge against the risk of a lower Aussie dollar. The key focus for most people when organising such trips is to ensure they get the best value flights and accommodation, with little thought as to how they can manage their spend whilst over there.

Most people consider the biggest expense to be the flight and hotel: for example a return economy flight plus 7 nights accommodation at an average hotel in say New York, costing around $5,000 per person. However when you factor in food and beverages, entertainment, taxis and day trips, and the odd indulgent purchase, the total spend can be much higher, and of course it multiplies if there are a few people travelling as a group.

The total spend can easily escalate and is hard to estimate, particularly when on-the-ground purchases are priced in a foreign currency and paid for by cash or credit card; but it is possible to get some certainty ahead of time.

Travel card popularity surges

Savvy travellers have caught on in recent times and become more aware of the benefits of pre-paid travel cards. MasterCard has predicted Australia's prepaid consumer travel card market will reach $2.9 billion by 2017.

According to a UK study by Compare Money, travel money cards gave a better exchange rate than other travel money providers, on average 8 per cent better than exchanging at airports, 4 per cent better than travellers cheques and 5 per cent better than at a bureau de change. Not only can the fees and exchange costs be cheaper than paying by credit card but the currency can be converted in advance locking in the actual exchange rate, providing some certainty ahead of departure.

If there are any US dollars remaining on the travel card they can be used on the next trip or to buy goods from overseas websites, as an alternative to paying more via a credit card or PayPal purchase.

Be warned though! For businesses involved in regular international trade, travel cards are not the best solution. For managing regular foreign currency payments it's best to source an international payments specialist that can not only help save on transaction costs but also deploy risk management solutions that suit your business.

Pay hotels direct

Those looking for even bigger savings can use an international money transfer service to pre-pay accommodation costs in a foreign currency. It is usually cheaper to pay for overseas hotels in the overseas currency as hotels can put a margin on the exchange rate when converting the Aussie dollars to their own currency.

So rather than leaving the conversion of Aussie dollars to the hotel take control of the situation and save even more.

Finally, if you are heading overseas to visit family or return to your country of origin then another way to manage your foreign currency is to use a local bank account. If you still hold your own account then send funds via international money transfer directly to that account. This way you can withdraw spending money when you get there with little or no fees whatsoever.


The Aussie dollar turns back to commodities

Wednesday, June 18, 2014

by Jim Vrondas

It is well known that our economy is heavily dependent on commodity exports. Around 60% of our total exports - Metals (28%), Coal (18%), Oil & Gas (9%) and Agriculture (5%) are for commodities. In April the total Australian dollar value of our exports ($28.5 billion) almost matched imports ($28.6 billion) with the shortfall, just over $100 million, coming because imports exceeded exports - this is the first trade deficit since October last year.

It is no surprise that the majority of our exports still go to China. In fact exports to China reached a new record high, up 5% on the previous month to be 25% higher than a year ago with iron ore increasing 29% over the same period. In this context the fact imports were able to outpace exports is remarkable and true testament to the strength of the Australian economy. So the deficit doesn’t worry me at present.

Such large sums of imports and exports also have implications for foreign exchange markets as currency is exchanged as a consequence. For a number of reasons that I won’t go into in this piece the currency exchange does not equal the dollar value of these international transactions. Suffice to say however that the value of the Aussie dollar is influenced by these movements, hence the correlation between commodity prices and the local currency has always been quite high – I’ll come back to this relationship shortly.

What is the RBA on about?

For over a year now the RBA has been saying our terms of trade have peaked and the Aussie dollar has remained at historically high levels. In its last statement the bank pointed towards some of those commodities “important to Australia” that “have continued to decline of late.”

The Trade Balance data that came out a few days after the last RBA meeting saw farm exports decline 6%, the largest monthly drop in over two years. In addition there is growing speculation that iron ore and coal prices might continue to fall as they have in recent times. To this extent the RBA might eventually find the Aussie dollar drift lower IF commodity prices do what people expect. But of course we all know markets often do the unexpected.

Commodity Index highly correlated to the Aussie dollar

With good reason investors often track the price of Iron Ore or other key commodities for currency direction. There are however several indices that can provide a broader view of performance in these sectors. For a long time the Commodity Research Bureau’s (CRB) Index of futures prices has been a favourite of mine as it is a fairly reliable measure of the performance of a basket of commodities. When overlaid against the Aussie dollar the correlation over a long period of time is pretty clear.


The correlation is based on the principle that commodity price moves precede a move in the currency.

The move higher in the Aussie dollar at the beginning of the year seemed to follow the move higher in the CRB however in recent weeks the Aussie appreciation has come at a time when commodities have come off. This does support the view that the currency may be getting close to a peak but I get the sense economic developments in China and the broader trend for the CRB may provide only a brief dip in the Aussie dollar.

Jim Vrondas is Chief Currency strategist, Asia-Pacific at OzForex, a global provider of online international payment services and a key provider of Forex news. OzForex Group Limited, is a publicly listed entity with shares traded on the Australian Securities Exchange under the code "OFX".


The Budget, the RBA and the Aussie dollar

Monday, May 19, 2014

by Jim Vrondas

The spending cuts and tax rises announced in the budget will affect all of us directly in some way or another and have already exerted some influence on the Aussie dollar since Tuesday’s announcement.

When snippets of the budget were initially released a few weeks ago the currency weakened. In theory tighter fiscal policy could provide a significant headwind for economic growth in Australia. It also threatens to undo some of the RBAs work in stimulating activity and keeps the door ever so slightly open for another rate cut.

Whilst the central bank probably welcomed some of the policies sometimes there is a fine line between taking some of the heat out and freezing it altogether. Time will tell exactly what economic impact will be and if the RBA will need to react.

No budget emergency

It is clear framing a “budget emergency” in the lead up was predominately a political ploy. The Treasurers own forecast of the underlying deficit came down from an already low 2.1% of GDP in the middle of the year to just 1.8% - hardly a ballooning deficit in need of urgent attention.

Currency markets are usually a good way to gauge sentiment with the almost immediate half a cent rise seen as a small vote of approval. The reaction however also indicates a lack of any real concern by global investors about Australia’s fiscal position in the first place. If it was a major concern and the market was really relieved then I would have expected the Aussie dollar to rally further.

The small possibility of another reduction in the cash rate is one factor holding back the currency from rallying further but it has not triggered a wave of selling either, which leads me to believe that the Australian dollar will continue to press higher in 2014.

Faster return to surplus

Putting aside the downside risks to economic growth from this budget the shorter timeline for a projected return to surplus has been welcomed by currency markets. Prior to this budget it was envisaged that it would take around ten years to return a surplus however the government is forecasting a reduction in the deficit from $29.8 billion to a relatively neutral $2.8 billion over the next 3-4 years with a surplus by 2019-20.

In its modelling the government based its assumptions on very conservative unemployment and GDP forecasts of 6.5% and 2.5% respectively. As it is most likely these indicators will outperform over the next few years the budget will probably return to surplus sooner. One gets the feeling that a surplus or near surplus could come rather close to the next election.

Jim Vrondas is Chief Currency strategist, Asia-Pacific at OzForex, a global provider of online international payment services and a key provider of Forex news. OzForex Group Limited, is a publicly listed entity with shares traded on the Australian Securities Exchange under the code "OFX".


Future of the Aussie dollar – the long and short of it

Tuesday, April 22, 2014

by Jim Vrondas

There are many different methods used in an attempt to model both “fair value” and “future value” of the Aussie dollar most of which are very rarely that accurate, or useful for that matter. Not that useful because the goal posts are always moving as new information comes to hand and so the valuations are always changing.

In foreign exchange people often talk about the market being “long” or “short”. For many people familiar with investing in stocks the idea of having a short position can be relatively foreign but this is very common in the FX market. To be "long" refers to having already bought a currency which means you are a potential seller whilst to be "short" means you have sold first and are a potential buyer.

Due to the relative nature of currency markets (they trade in pairs) when you buy one currency then you are selling the other. Think Aussie versus US dollars or Pounds versus Aussie. When you buy Aussie dollars then you are selling US dollars (AUD/USD) hence why it is called an exchange.

Aussie Dollar Futures on the CME

A contrarian with the view that the market is short AUD/USD might decide to buy Aussie dollars and sell US dollars. But how can one form such a view? This is rather difficult given FX markets are traded Over The Counter (OTC), meaning there is no one central exchange for currencies like there is on the ASX for stocks.

Currency Futures however have been traded on a regulated exchange, the Chicago Mercantile Exchange (CME), since 1972. One can buy or sell an Aussie dollar futures contract (AUD/USD) providing the market with visibility on the overall futures market position. The chart below shows the net futures positions on the CME against the value of the AUD/USD exchange rate. Net positioning refers to the difference between open long and short Aussie dollar futures contracts.

Since around the middle of 2013 futures traders carried net short positions. This was due in part to the bearish outlook for Australian interest rates and the Aussie dollar. So speculators were short in anticipation of more downside on the AUD/USD and short they were in a big way with almost 80,000 more open short contracts than long ones in July when the exchange rate was near 89 US cents.

The contrarian investor over this period would have gone long AUD/USD on the view that the short Aussie trade was overcrowded. If new information comes to hand contrary to what’s already known, that points towards a higher Aussie dollar, then these short positions would need to start buying to exit their trades hence pushing the rate higher.

As history shows us once the RBA moved their monetary policy stance to a neutral rate setting, the market started to cover their short positions triggering a rally in the Aussie dollar. It is evident on this chart the correlation between Aussie dollar futures net positioning and the AUD/USD exchange rate is quite high at the moment.

Since this chart was released late last week the net positioning has, for the first time in 11 months, moved back into positive territory meaning there are now more long AUD futures positions than short ones.

Those seeking for more clarity on the future direction of the Aussie dollar might be well served to keep a close eye on the Australian Dollar futures positioning on the CME. If, as I anticipate, the net positioning continues to move in this direction then we could see the Aussie dollar trade closer to parity in coming months.

Jim Vrondas
is Chief Currency strategist, Asia-Pacific at OzForex, a global provider of online international payment services and a key provider of Forex news. OzForex Group Limited, is a publicly listed entity with shares traded on the Australian Securities Exchange under the code "OFX".


Aussie spirit withstands China gloom

Tuesday, March 18, 2014

by Jim Vrondas

There has been a very large amount of both negative and positive data out of China and Australia over the last few weeks with the Aussie dollar bouncing around the 90 cent level, seemingly unsure as to where to take its lead.

We all know the performance of the Chinese economy is critical to the Australian economy but does it have more influence over the Aussie dollar than our own economic data?

Let me start by saying it’s often difficult to get an accurate gauge on exactly where the Chinese economy sits at any given point in time. In addition many people don’t take official economic data out of China seriously. Whether we like it or not we can’t ignore it especially since the markets react to it.

In March alone we have had the Chinese NPC annual gathering and an unchanged 7.5% 2014 annual GDP target (vs 7.7% in 2013), a massive blowout in the Trade Balance that turned from a 31.9 billion surplus to a 23 billion deficit, lower than expected consumer and producer price inflation and to top it all off Industrial Production fell to its lowest level on an annualised basis since May 2009. This has seen increased concerns around the prospects for economic growth out of China in 2014.

On the other side of the equation the Australian economic data in March has been rather rosy with Building Approvals, GDP, Retail Sales, Trade Balance and Employment all coming in stronger than expected. One may argue they are lagging indicators and we should focus more on the poor NAB Business Confidence and Westpac Consumer Sentiment surveys which could weigh on the economy this year.

Australian dollar up 1.5% since 3 March 2014


For the rest of the world the Aussie dollar is seen as a proxy to investing in China given our open market economy and commodity driven (to China) export economy. So quite often when China sneezes the Aussie catches a cold. But not this time.

Despite the sell offs this month in relation to the poor China data our dollar has proven to be remarkably resilient, trading 1.5% higher than where it was at the beginning of the month. Proving that domestic economic data, for the time being, is more important in the currency market's mind than the potential slowdown in the Chinese economy.

I put this down in part to faith that the RBA has a good read on the economy and the transition out of the mining peak is, at this still early stage, moving in the right direction. Combined with the fact the market is structurally very short Aussie dollars, the downside in the short term is limited to around 89 cents.

Jim Vrondas is Chief Currency strategist, Asia-Pacific at OzForex, a global provider of online international payment services and a key provider of Forex news. OzForex Group Limited, is a publicly listed entity with shares traded on the Australian Securities Exchange under the code "OFX".


Don’t let a lower Aussie dollar rule your international share portfolio

Monday, February 17, 2014

By Jim Vrondas

The combination of a lower Aussie dollar and higher US equity markets has seen some sensational returns on international shares over the last 12 months. When you compare the 20% rise in the S&P500 index to a 4.15% in the S&P ASX 200 then it’s no wonder those funds heavily invested in offshore equities are outperforming. The returns look even better at around 35% when you consider a further 15% boost, if unhedged as most of them are, from a lower currency over the same period.

These very impressive returns may be tempting many to cash in after several years of underperformance or simply switch the focus of their investment portfolios to a more domestically focused one.

Depending on where you are in the investment cycle the impact of the lower Aussie dollar will affect you in different ways.

If you made your initial investment 3-5 years ago then this may be just clawing back some of the losses from previous years. Your overall returns may still be negative, neutral or back in the positive and how you feel about these investments into the future may become heavily linked to the historical performance – hard for it not to really.

For others considering an offshore investment they may still be tempted by forecasts of an even lower Aussie dollar over the next 12 months with many analysts predicting a rate closer to 80 cents. If this eventuates then a lower Aussie dollar could add another 10% to the return of the investment.

There is a big temptation to play the currency game and look for currency gains in order to increase investment returns. The focus should however be on the underlying asset and one should not make a decision to invest based on the currency valuation. It is quite a risky proposition to base your investment decision on a forecast because as we know forecasts can and do change as new information comes to knowledge. Besides, when it comes to currency forecasts they can be very unreliable given the many unknown factors that influence exchange rates.

After such a big move in one direction there is always the possibility of a correction in either international equities and/or the Aussie dollar over the next 12 months so investors may be better served focusing on tools or techniques to minimise the risk on their investment.  There are tools such as Forward Exchange Contracts, Options or Futures contracts available to hedge against the currency risk. Depending on a variety factors such as the asset type, the country the investment is located in and the investor's risk profile a hedging structure can be put in place to help.