European holidays are getting cheaper for Australian travellers as the Aussie dollar climbs against the Euro

For Australians dreaming of Europe, the timing has suddenly become sweeter. London, Berlin and Ibiza have not cut their prices, but on global currency markets, the maths has shifted in holidaymakers’ favour.

The Australian dollar has surged 11.7 per cent versus the Euro over the past year to buy €62.3 cents on Wednesday, up from close to €55.1 cents this time last year.

The move represents a sharp turnaround for Australians heading to Europe, where a €10,000 family holiday would have cost $18,160 this time last year, but just $16,000 this week.

The dollar has also gained around 8 per cent versus the British pound over the past 12 months, to buy £52.6 pence on Wednesday.

Still, 18-year-old Archie Martin, was surprised by some of the continent’s high prices. The Kincumber, New South Wales resident, just returned from a traditional two-month overseas experience (OE) backpacking in Europe.

“I’d say the prices for groceries and going out for dinner are similar to here,” he said.

“Prague was cheaper than London or Australia. And Prague felt really clean, when I was out at night they swept the streets, so I’d say go there.

“In London, fast-food is definitely more expensive and some of the groceries cost more than here, but I loved it.”

Market pricing

For financial markets, the rising dollar goes beyond cheaper European holidays.

Its year-long surge reflects a widening interest-rate differential between Australia and Europe, as well as shifting expectations about the relative strength of the two economies.

The Reserve Bank has pushed its cash rate to 4.65 per cent, a 15-year high, as it battles persistent inflation. The European Central Bank has taken a different path, cutting rates eight times through 2024 and 2025 before beginning to tighten again as inflationary pressures re-emerged.

The ECB’s benchmark rate now stands at 2.5 per cent, leaving a substantial gap with Australia.

The difference between the rates is primarily what has pushed up the value of the Australian dollar, versus the Euro.

“The big driver is the RBA’s four rate hikes in 2026,” says My Bui, an economist at AMP Limited.

“In the Eurozone you’ve 6.4 per cent unemployment and the UK is 4.9 per cent, so their economies are not as resilient as ours.”

Versus the US dollar, the Australian dollar has also added around 7 per cent in the last 12 months to buy US69.9 cents on Wednesday.

Ms Bui says a stronger currency has advantages in terms of overseas holidays, but there is a trade-off.

“Importing goods is cheaper for Australia,” she says.

“But higher rates slow the economy and can push up unemployment, so you still need to have a job and be making money to notice any benefits. And we think the economic data in Australia is starting to slow a little now, so our base case is the RBA will hold rates in November.”

Holiday window

The economist said Australians dreaming of a European holiday, might want to book their trips sooner, rather than later.

“I’m not sure it (the strong exchange rate) can continue much longer though,” she said.

“The ECB and Bank of England are just starting to lift rates potentially, whereas we may be near the top of a cycle.”

Martin, who plans to study architecture at the University of Sydney from 2027, said the cost of travel had not dampened his appetite for another overseas trip.

Switzerland and the Alps were among his other highlights, while his favourite memory was an impromptu flight from Italy to London to watch a football match between local rivals Millwall and West Ham.

The currency may have helped, but it was hardly the point.

“I loved it, that was the best time,” he said.

On November 3, the Reserve Bank will hand down its next decision on whether to move interest rates higher or lower. Market pricing now suggests a 74 per cent chance it will hold rates at 4.65 per cent.