The foreign exchange market – what is an interbank rate?

The foreign exchange market is a global decentralised market also known as an over-the-counter market where bank dealers make the marketto determine the interbank exchange rate, i.e. the rate the banks use when trading with one another.

The interbank rate is the mid-point between the buy and sell rate for a currency on the open market and is the most accurate rate of exchange at any given time. You can easily check this at any time using the XE Currency Converter.

Unfortunately for most of us, this rate is reserved solely for banks and large financial institutions trading in large amounts of foreign currency. For retail or business banking customers looking to make smaller international money transfers, a margin (or spread) will be applied to the interbank rate to ensure a profit for the service making the transfer.

As a retail banking customer, this margin may be anywhere between ~4-5% of the interbank rate. The graph below illustrates the rate that a customer may expect to receive from the bank when converting their AUD or NZD to GBP.

What determines whether I receive a competitive rate?

Naturally, when sending money abroad, it’s in your best interests to ensure you keep as much of your money as possible by locking in a favourable rate of exchange.

The exchange rate you receive will be based on a number of factors, including:

• Volume – the amount you are converting
• Currencies exchanged
• Knowledge and awareness
• Frequency of transactions – ongoing or one-off

However, one of the most sure-fire ways to ensure you are receiving a competitive rate is to look at using a money transfer specialist like XE who provides a much sharper rate of exchange than you would otherwise receive from the banks.

Why you should look beyond your bank

XE works closely with our broad network of referring partners to provide their clients with a competitive, secure money transfer solution. As such, when you choose XE Money Transfer via one of our partners, you will receive preferential rates of exchange that are more competitive than you would receive from other providers.

…It’s not just about the rate

At XE, we pride ourselves on delivering our clients value beyond a great rate, providing a much more comprehensive service than they could expect to receive from the banks.

Exchange rates fluctuate at any given minute and as such our expert team are on hand to be your eyes and ears on the market and advise on how to ensure you lock in the best rate possible. We also offer a range of products typically not made available to retail banking clients, including Market Orders and Forward Contracts, that will help you reduce your exposure to currency risk.

Currency snapshot

The Australian dollar tracked lower through the latter stages of February and early March as weaker economic growth and falling house process lead many to believe that the Reserve Bank of Australia will cut interest rates once or twice through the second half of 2019.

Given that the Reserve Bank of New Zealand is currently expected to keep NZ rates on hold for the time being, the Kiwi dollar has been outperforming its antipodean cousin for some time.

NZD now sits at its highest level vs the AUD since early 2017 and appears poised to once again have a crack at breaking parity with some of the major banks calling this to occur within the next couple of months.

BREXIT deal progress still remains up in the air with further parliamentary votes this week with the likely outcome being another NO vote for PM May’s package. The UK parliament to then proceed to another vote, deciding to leave the EU with a no deal, or vote to extend the Article 50 deadline – the latter expected to allow more time for a deal to be agreed.

The Kiwi dollar currently sits ~7% off post BREXIT lows whilst the Aussie dollar just ~1.50% higher.

Marcus Phillips

Director of Affiliates & Partnerships Australasia

Website: https://xe.com/