How exchange rates work for international transfers

The mid-market rate explained

The foreign exchange market is the largest financial market in the world, with daily turnover exceeding USD 7 trillion (BIS). Banks, central banks, corporations, and institutional investors trade currencies around the clock.

The mid-market rate (also called the interbank rate or spot rate) is the midpoint between the current buy price and sell price for a currency pair. It is the rate at which large institutions trade and is the benchmark reported by financial data providers, Google, and services like XE.com.

The mid-market rate is not the rate you receive when you make a transfer. It is the reference point against which the rate you receive should be measured.

The spread: where the cost hides

The spread (or margin) is the gap between the mid-market rate and the rate your provider offers. If the mid-market AUD/USD rate is 0.6500 and your bank offers 0.6300, the spread is approximately 3.1%. On AUD 10,000, you receive USD 6,300 instead of USD 6,500 — a difference of USD 200.

Different providers apply different spreads. Banks typically apply 2–5% above mid-market. Specialist providers like Wise use the mid-market rate itself (with a separate visible fee). OFX and XE apply a margin of 0.4–1.5%. Currency exchange shops (like Travelex) apply 3–8%.

The spread is the primary revenue mechanism for most transfer providers. Providers that advertise "no fees" are generating their revenue entirely through the spread.

What moves exchange rates

Exchange rates are determined by supply and demand in the global currency market. The main factors that influence rates include interest rate differentials (currencies with higher interest rates tend to attract investment and strengthen), economic data (GDP growth, employment figures, inflation readings move rates when they differ from expectations), central bank policy (decisions by the RBA, Federal Reserve, BOE, and other central banks directly affect their currencies), commodity prices (the Australian dollar is influenced by iron ore, coal, and gold prices due to Australia's commodity exports), and geopolitical events (elections, trade disputes, conflicts, and policy changes create uncertainty and can move rates sharply).

For an individual making a transfer, these factors are largely uncontrollable. What you can control is whether you transfer at a rate that is close to mid-market or one that includes an unnecessarily large margin.

Timing your transfer

For small, regular transfers, timing matters less than choosing a low-cost provider. The rate fluctuates daily, and the savings from choosing the right provider (Wise vs a bank) typically dwarf any gains from perfect timing.

For large one-off transfers, timing can be significant. A 2% move in the AUD/USD rate on AUD 200,000 is AUD 4,000. Strategies for managing timing risk include rate alerts (setting a target rate and transferring when it is reached), forward contracts (locking in a rate for future delivery, available through OFX and forex brokers), and staged transfers (splitting a large amount into several transfers over days or weeks to average the rate).

No one can consistently predict exchange rate movements. Professional currency traders with sophisticated tools and information cannot do it reliably — and neither can you. The goal is not to time the market perfectly but to avoid transferring at a demonstrably bad rate and to use the best provider available.

Fixed rate vs live rate providers

Some providers offer a fixed rate that is locked in for a period (for example, Remitly may lock the rate for 30 minutes while you complete the transfer). Others offer a live rate that changes with the market and is confirmed only at the moment of execution.

For standard transfers, the difference is minimal. For very large transfers during periods of high volatility, a live rate may move against you between the time you start the transfer and the time you confirm. Forward contracts address this by locking the rate for longer periods.

Exchange rate and tax

For Australian tax residents, exchange rate gains and losses on personal-use amounts (savings, living expenses) are generally not assessable or deductible. If you hold foreign currency specifically for investment purposes and realise a gain on conversion, the gain may be assessable. This is an edge case that applies mainly to people holding large foreign currency balances for speculative purposes.

For practical purposes, most migrants converting savings to AUD or sending regular remittances do not need to account for exchange rate gains or losses on their tax return. Consult a registered tax agent if your situation involves large, investment-purpose currency holdings.

What is a "good" exchange rate?

Any rate within 0.5% of the mid-market rate is competitive. Rates within 1% are acceptable. Rates more than 2% from mid-market are expensive and suggest you should use a different provider.

Should I wait for a better rate?

If you have time flexibility and the rate has moved significantly against you recently, waiting for a recovery is reasonable. However, rates can continue to move in either direction — waiting carries the risk of a further deterioration. For most people, the provider choice (and the margin it applies) has a bigger impact than the timing of the transfer.

Where can I find the mid-market rate?

Google (search "AUD to [currency]"), XE.com, the RBA's published exchange rates, or any financial data provider. The mid-market rate updates continuously during market hours.

Do exchange rates change on weekends?

The global forex market is closed on weekends. Rates do not change between Friday close and Monday open, though a gap may appear at Monday's opening if events occurred over the weekend. Some providers (like Revolut) apply a weekend markup to protect against this gap risk.