Rising kiwi a bonanza for travellers

SOARING: This Turkish balloon adventure is on sale, thanks to the Kiwi's big jump against the lira.
SOARING: This Turkish balloon adventure is on sale, thanks to the Kiwi's big jump against the lira.

Fancy a hot-air ballooning trip around Turkey? How about going on safari in South Africa, raving under the full moon in Thailand, or riding a Japanese bullet train?

All these trips are officially on sale, thanks to the brute strength and bargaining power of the Kiwi dollar. This month it muscled its way past the US87 cent mark, near its highest ever point since floating in 1985.

While the juiced-up dollar has got exporters and returning expats choked in a headlock, it is a traveller's best friend.

We compared the exchange rates for a basket of 20 popular currencies between this time last year and now.

In the space of 12 months, the Kiwi has risen by 5 per cent or more against almost every one of them, and by 15 per cent in at least five countries.

New Zealanders' predilection for globe-trotting looks set to become stronger than ever.

"What we've seen is there's been a definite increase in the travel market," says Simon McKearney, general manager of product for Flight Centre NZ.

For one thing, flights are getting cheaper and cheaper, like a $845 return fare to Los Angeles advertised this week.

"Fuel's a big component of it, and that's always priced in US dollars," says McKearney.

"When that sits favourably, so does the airfare pricing."

Once you touch down and start spending, your New Zealand dollars will also stretch a lot further than they did last year.

"I just got back from Australia [last week], and gee I couldn't believe it," says McKearney.

"When the pricing's pretty much one-for-one, it makes for a pretty good visit."

What's going on?

You should never look a gift horse in the mouth.

Nevertheless, we have enlisted Westpac senior markets economist Michael Gordon to pry open the jaw and explain what's going on.

HAPPY TRAVELLING: How much will your NZ dollars get you overseas?
HAPPY TRAVELLING: How much will your NZ dollars get you overseas?

Interest rates have played a big part in the Kiwi dollar story over the last 12 months, he says.

"This time last year, there was still a lot of scepticism in markets that the Reserve Bank would be able to raise interest rates.

"How can we do something different to the rest of the world?"

But that is exactly what happened. Our Official Cash Rate has been ratcheted up to 3.25 per cent, with further hikes scheduled to come.

Meanwhile, other Western countries are still languishing, with the United States at 0.25 per cent, and the United Kingdom at 0.5 per cent.

Foreigners looking to get a better return on their cash buy investments and assets priced in New Zealand dollars, pushing up their value.

But that is only half the story.

"Saying it's due to interest rates is dodging the question," says Gordon.

"Your primary driver is really going to be the state of the economy."

Rock-star might be stretching it, but there is undeniably decent growth underway.

That has pushed up inflation pressures, hence the central bank's move to put the brakes on by imposing higher lending rates.

Best Bang for Buck

With the technical stuff out of the way, what are the hottest destinations for booking in a cheap getaway?

The five currencies the dollar has dominated the most are the Turkish lira, South African rand, Thai baht, Japanese yen and Canadian loon, all down 15 per cent or more.

But practically speaking, you are not going to plan your dream holiday around exchange rates.

The number one international destination is our closest neighbour, Australia.

Kiwis flock across the ditch in droves, accounting for 45 per cent of all international travel, says House of Travel commercial director Brent Thomas.

The good news is that the Kiwi is up 9 per cent against the Aussie year-on-year. At the time of writing, it would buy you A94c, not far off parity.

Thomas says the second biggest holiday hotspot is the United States, a fast growing hotspot with more flights heading to Hawaii.

Those going stateside will get a 10.5 per cent higher stack of greenbacks, enough to upsize every fast food meal and receive the full American experience.

Fiji is number three on the list, with over 100,000 people travelling to the Pacific paradise last year.

Those that make the journey to escape the blues this winter will enjoy a 7.7 per cent higher exchange rate.

The UK, at number four, is the one exception to the stellar growth. Even so, buying pounds is a marginally better trade than it was last year, up 0.7 per cent.

Number five is the Cook Islands, which uses New Zealand currency anyway so there is no benefit there.

Spending up a Storm

Favourable exchange rates don't necessarily mean you will come home with much spare change jingling in your pocket.

Thomas says people tend to have a set budget in mind, and they will spend the lot regardless.

"Say they're going to Europe: Instead of going for 15 days, they may go for 17 days, because they've got that extra spending power," he says.

"Or they may go on a river cruise, or a Mediterranean cruise, because the money just goes that much further."

If you do want to spend less, it might pay to allocate yourself a smaller limit in the first place.

Sadly, whichever way you turn, conversion fees are going to eat up some of the precious gains.

But if you plan ahead they can be minimised.

If you are going to buy hard cash, it's better done from a bank than a last-minute stop in at the airport forex desk.

However, McKearney says taking big lump sums overseas is increasingly uncommon these days, and impractical for security reasons.

"People take a smaller amount for incidentals, for taxis when they first arrive, or buying a coffee when you get off the plane."

Using an ATM once you get there gets expensive fast. You will pay an international withdrawal fee, a conversion commission, and often another fee from the foreign ATM itself.

Another option is to use your credit or debit card as much as possible, which incurs a commission of about 2.5 per cent, but spares the fee. 

Then there are the increasingly popular "cash passports", which let you load several different currencies onto one card ahead of time.

Although you have to pay $15 to get set up with Mastercard's offering, and there are "inactivity" fees for dormant cards, there is only a 1 per cent commission for re-loading money.

One advantage of the cash passport is that you can lock in rates when they are in your favour; like the Kiwi dollar above US87c.

"People will be sitting there going, hey, I'm going in six months' time- I'll buy now, because I think that's a good rate," says Thomas.

"[But] there are an equal number of people who use their credit cards and take the interest rate on the day, and so be it. There's no right or wrong."

Currencies do not actually change much on a day to day basis, so there is no point fretting about exchange rates once you are already poolside, martini in hand.

But if you want to make the most of the strong Kiwi, it's definitely worth planning out your strategy before you leave the tarmac.