Riding the currency waves: managing currency risk as an expat

Managing currency risk as an expat

Living abroad opens up a world of opportunity. But it also introduces new financial risks, including currency risk exposure. When your income, assets or expenses are spread across multiple countries, even a slight movement in the Australian dollar can have a significant impact on your financial position.

A weaker Australian dollar can boost the value of your overseas income when converted back home, but it can also make your cost of living higher if you’re paying expenses in another currency. Conversely, a stronger dollar can erode the value of your overseas savings or investments.

Managing exchange rate risk is about protecting yourself from these swings. The goal isn’t to predict the future or perfectly time the market; it’s to create a strategy that smooths out volatility, keeps your finances predictable and aligns with your life goals.

Match your strategy to your goals

Trying to pick the perfect moment to exchange currency is notoriously difficult. Rates can shift suddenly on the back of political news, economic data releases or central bank announcements. A better approach is to start with your financial objectives and choose a strategy that fits.

If you’re preparing for a fixed event – such as buying a property, paying tuition or returning permanently to Australia – converting the full amount at once can provide peace of mind. By locking in a known amount, you remove the risk of a sudden downturn just before you need the funds.

For long-term savings or discretionary transfers, such as gradually building investments in Australia, a staged approach is often more effective. Moving money in smaller, regular amounts – sometimes called “dollar-cost averaging” – helps smooth out volatility and reduces the risk that a single poor timing decision will impact your wealth.

The most important thing is to plan early. Knowing how much you need, when you’ll need it and how you intend to move it allows you to act deliberately rather than react to short-term market swings.

Understand the true cost of transfers

When transferring money internationally, the cost is more than just the visible fee. Most banks add a margin to the exchange rate they offer, which can make a significant difference to the amount you receive. There may also be charges from the receiving bank that reduce the final amount landing in your account.

For example, on a $100,000 transfer, even a small difference in the exchange rate can change the outcome by thousands of dollars. Comparing providers, understanding their fee structure and focusing on the total amount you’ll receive after all charges are essential, particularly for large or repeated transfers.

Use specialist providers and tools

Traditional banks are convenient but often have wider margins and less competitive rates. Specialist foreign exchange providers typically offer:

• More competitive rates with smaller margins
• Clearer, transparent fee structures
• Access to tools that help you manage exchange rate risk

Two tools that can be particularly helpful are:

• Limit orders, which allow you to set a target exchange rate. The transfer is automatically triggered when the market hits your chosen rate, so you don’t have to watch the market constantly.
• Forward contracts allow you to lock in today’s rate for a future transfer. This is useful if you have a known expense coming up – for example, a property purchase or large tuition payment – and want certainty about the cost in Australian dollars.

Because forward contracts are derivatives, it’s essential to seek advice from a licensed professional before using them.

Plan for major expenses early

Large financial commitments can be particularly sensitive to exchange rate movements. Imagine you’ve agreed to buy a property overseas and the dollar drops before settlement, adding significantly to your costs. Taking steps to hedge exchange rate risk in advance can provide peace of mind and protect your budget.

This might involve converting funds ahead of time when rates are favourable, using a forward contract to lock in a rate or a combination of staged and one-off transfers, depending on the timeline and size of the transaction.

Stay compliant and keep records

Currency gains can have tax implications, so keeping accurate records is essential. Track the amount, date, conversion rate, fees and purpose for every transfer. This not only helps you remain compliant with reporting requirements in Australia and overseas, but it provides valuable data for future planning. Stay updated on legal thresholds, documentation and reporting standards for both Australia and your country of residence.

Get the right advice

Managing currency exchange rate risk is just one part of the bigger picture. Your investment strategy, tax obligations, superannuation and long-term goals all play a role in shaping the right approach. Working with a financial adviser and accountant who understands cross-border issues can help you avoid costly mistakes, optimise your transfers and build a plan that supports your broader financial future.

The bottom line

Currency risk is a fact of life for expats, but with the right approach, it can be managed and even turned to your advantage. By matching your transfer strategy to your goals, using the right providers and tools and planning for significant expenses, you can take control of currency risk exposure rather than leaving it to chance.

Apt Wealth Partners’ advisers specialise in expat financial planning and can help you create a strategy that works for your unique situation. Reach out today to start managing exchange rate risk with clarity and confidence.