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As an Australian I can confirm that the AUS to US latency (or AUS to anywhere really) does indeed suck. I REALLY notice the difference when I on an Aussie site.

However hosting over in the US is a lot cheaper than it is to buy locally. Still, I'd urge application developers to buy hosting in the country of your target market.

Here's a list of Australian VPS providers. http://www.vpsau.com/

Unfortunately they don't all provide self service and some even have a setup fee!

The amount of traffic you get varies. For $40/month I've seen 5GB up to 60GB traffic on a 256MB VPS. I'm one of the people shocked by the true impact of choosing cheaper overseas hosting. I'm also running 12 VPS's at home on a DSL connection and they're super fast for Aussie users.

Are there any Australian startups here and if so, are any of you primarily targeting Australian users?