AUD to PHP exchange rate illustration

The Top 7 Forces Impacting the AUD to PHP Exchange Rate

If you’ve recently been exchanging your Australian Dollars for Philippine Pesos, you may have noticed that you’re getting less bang for your buck than you were five years ago.

We’re going to take you through the top seven forces impacting the AUD to PHP exchange rate, highlighting the particular reasons behind the recently strengthening PHP.

1 | Boom!

The World Bank places Filipino GDP growth at around 6% for the next three years. This is significantly larger than Australia, which is sitting at around 2-3%. Strong economic growth makes the Philippines attractive to overseas investors. This pushes up the demand, and therefore the price, of the Philippine Peso compared to the Australia Dollar.

But what exactly is driving this growth? Let’s take a look at a few key factors:

2 | Remittance

Remittance is money being sent home by overseas workers. This money is then spent in the Philippines on local goods and services – injecting overseas money into the local economy. This provides fuel for the economy through increased spending, driving economic growth.

Total remittance to the Philippines has reached around $24 billion in 2014. While remittance growth is beginning to show signs of slowdown, it’s still a massive contributor to the booming Filipino economy.

3 | Low Inflation

Inflation is the measure of general price rise over a period of time. As general prices rise, your savings are worth less. In other words, inflation erodes the value of money over time. Investors are scared of inflation and reluctant to invest money into a country with high inflation as a result.

The Philippines currently has inflation of around 2.5% – which is relatively low. Investors are comfortable with this and are happy to invest in the Philippines – driving economic growth through an injection of cash.

4 | High-Interest Rates

High-interest rates lure overseas investors with the expectation of high returns on their money. This drives up the demand for the respective currency.

Currently, the Filipino interest rate is sitting at a reasonably high 4%, while the Australian interest rate is sitting at around 2.5%. Investors are attracted by a 4% return, and will gladly invest in the Philippines, increasing the demand for the PHP.

5 | Business Process Outsourcing

Business Process Outsourcing (BPO) is the outsourcing of specific parts of a business, such as accounting, human resources and customer services. Companies outsourcing to the Philippines has created a large number of jobs, injecting more money into the economy. This has lowered unemployment and increased wages – driving spending and therefore growth.

Be wary though, as high growth like this is historically unsustainable. We’re already seeing signs of remittance slowdown, so it’s realistic to expect GDP to somewhat follow suit. The current slowdown from China may also drag GDP down, due to a global decline in demand for resources and consumer products.

Speaking of China…

6 | Slow Down, China

China has been driving economic growth at 7% per year for over a decade. However, China’s large manufacturing ability and demand for resources has begun to slow over recent years. Slowdown from such a large buyer has caused global demand to decrease across the board.

This has hit Australia, a strong mining country (due to its rich deposits of precious metals) where it hurts most. Consequently, the demand for Australian exports have fallen dramatically, causing the AUD to sink. While a low dollar makes Australian exports appear cheaper to foreign buyers, there is currently limited demand for key exports such as Iron Ore.

Comparatively, one of the key exports of the Philippines are electronic devices (including components such as semiconductors). Rising demand for these components, fuelled by the digital age, has driven up the price of the PHP.

7 | Corruption

Corruption runs rampant in the Philippines – bribery, graft and embezzlement are all too common. This scares investors away through less certainty in their investment. Put simply, investors don’t feel safe with a lurking possibility of corruption. Corruption lowers confidence in a country and everything that it produces, driving the demand for the PHP down.

Fortunately, anti-corruption has been high on President Aquino’s agenda who has created tighter requirements of government transparency. Many argue that social media is also contributing to increased freedom of speech, allowing less corruption to occur behind closed doors. ( Corruption in the Philippines looks set to decline in coming years, slowed by President Aquino and modern technology. If this trend continues, investor confidence in the Philippines will increase and the PHP will likely be boosted against the AUD. However, the election in 2016 could easily turn the tides, thwarting many of Aquino’s accomplishments towards corruption decline.

Comparatively, Australia isn’t affected anywhere near as much by corruption, particularly in business. Investors are therefore more confident in Australian investments.

If you’re looking to send money to the Philippines or Australia, you’ll want to watch the Australia Dollar exchange rate – after all, this will determine exactly how much you’ll come out with on the other side. OrbitRemit offers low cost, attractive exchange rate transfers between the AUD and PHP. Check out our calculator on the top right hand side of the screen!