A general or national election might not seem like a big thing to think about in the context of international money transfer. But the reality is that these key events, of which there is often at least once a year among the major economies, can have a profound effect on the way that your money transfer plays out. This article will explore what the effects can be and how you can mitigate them.
Effect on exchange rates
Opinion polls can help to some extent, but ultimately an election is unpredictable. This offers little comfort to a person looking to strike at the right time when it comes to making an online money transfer, however. If the market responds badly to the result, perhaps due to the election of a left-wing or anti-trade candidate, a currency can easily go down in value – leading to a change in the exchange rate. But currencies may go up on an election win and depending which side of the transaction you’re on, and this could harm you too.
What is predictable, and of course controllable, is your behaviour. If a general election is coming up affecting either your own country or a country to which you plan to make a hefty transfer after the vote, it may be worth “hedging” by buying a forward contract which “locks in” the rate at the moment and specifies that you can have that rate on a certain date. While this doesn’t solve the opportunity cost problem of potentially missing out on a better rate, it does mean that you can get some certainty.
Long term effects?
It’s also worth thinking carefully about what the long term effects of a general election might be on that country’s place in the wider international financial scene – and what it could mean for your cross border payments in a year or so’s time. For many, the election of Donald Trump in the US caused many people who regularly require cross border payments to sit up and pay attention for various reasons.
Trump has regularly railed against the Federal Reserve, for example, and has encouraged them to cut interest rates as far as possible – a move which, if he is successful in exerting this political pressure, could lead to a knock-on effect in the value of the dollar. And Trump’s pursuit of isolationist trade policies in relation to China has often caused the value of the Australian dollar, which is sensitive to the Chinese economic position due to the deep trading connection between the two countries, to dip. It’s often not possible to plan forex transactions far in advance, of course – and to some extent, it’s not worth reading too much into the victor of an election. But for regular remittance senders, opening up a healthy alternative account with a well-reviewed broker containing some second, back-up currency might be a useful hedge against the consequences of politics in the future.
Elections can’t be second-guessed, but they can be planned for. Whether you choose to wait and see before making a cross border payment or you opt for a hedge like a futures contract, there are plenty of ways to do it. Read more money transfer guides here.
Planning for Brexit: how to deal with international money transfers
TorFX Best Exchange Rates - Case Studies
