Good news on Australian unemployment has helped to lift the Australian dollar against major currencies.
While the Aussie is up against most major currencies, analysts say the biggest potential upside is for those heading to Britain.
![A weak pound and stronger Australian dollar make a holiday to Britain cheaper.](http://web.archive.org./web/20170616081657im_/https://www.fairfaxstatic.com.au/content/dam/images/g/s/0/a/j/s/image.related.articleLeadwide.620x349.gwrrw9.png/1497595798649.jpg)
Australian Bureau of Statistics figures released on Thursday showed the unemployment rate fell to 5.5 per cent in May, its lowest level since February 2013.
The pound sterling is weak due to the inconclusive British general election of last week, which could present an opportunity to buy pounds at even better rates if, as expected, the Aussie continues to strengthen.
The Aussie, like most currencies, strengthened against the pound following the vote by Britain in June last year to leave the European Union, with $1 buying about 60 pence ever since.
The pound weakened again last week after the surprise election outcome. Analysts say the Aussie could be buying as much as 63 pence over the next month.
The election, called by Prime Minister Theresa May to increase the Conservative Party's majority, saw it lose its majority in Parliament.
Elias Haddad, a senior currency strategist at the Commonwealth Bank, says: "Over the next month or so we could see the Australian dollar test US77¢", from the US75¢ where it has been lately.
"But I think the Australian dollar will benefit the most against the British pound."
Haddad says if he was a traveller looking for the best value for his Aussies he would probably be going to the UK instead of the eurozone or the US.
"I expect the pound to be weaker against the Australian dollar largely because of the political uncertainty in the UK following Brexit and the recent election," he says.
It is not only the political instability that will keep the pound weak. Britain has negative real interest rates and a "massive" current account deficit, Haddad says.
Shane Oliver, the chief economist at AMP Capital, says higher US interest rates, a downward trend in commodity prices and a still soft Australian economy lead him to think that the Aussie could eventually weaken against major currencies.
There are numerous other indicators remaining on the soft side for Australia – including overall economic growth, consumer spending, non-mining investment, indicators for housing construction and wages growth, he says.
"Our view remains that there is far more risk of another rate cut [by the RBA] than a rate hike in the next 12 months," Oliver says. "But to see a cut we will likely need to see a faltering in the jobs data."
The Federal Reserve raised interest rates by 0.25 percentage points this week, the fourth rate hike this cycle. It takes interest rates to 1.12 per cent.
With our Reserve Bank leaving interest rates on hold at 1.5 per cent last week, the interest rate differential with the US is decreasing, which lessens the demand for Aussies from foreign investors.
Most experts expect the Fed to hike rates again before the end of this year.
Michael Judge, the head of corporate dealing at OFX, says it is likely the Aussie to pound exchange rate will stay close to where it is, with a bias to a bit more upside for Australian travellers.
However, before rushing to exchange travel money in one hit, bear in mind that currency exchange rates are notoriously difficult to forecast. A geopolitical shock, for example, could affect rates.
For those not travelling for a while, the best approach may be to cover bets by locking in a portion of travel money now at these relatively good rates, Oliver says.
The same goes for the US dollar. "The ongoing narrowing in the interest rate differential between Australia and the US, as the Fed hikes and the RBA holds or cuts will, at some point, weigh on the Australian dollar," Oliver says.
The experts do not expect much change in the Aussie to euro exchange rate.