The Australian dollar is down around 14 percent against it’s US counterpart since the start of the year and even hit a 17 year low just a short few weeks ago before slightly recovering.
This should have been enough to breath some life into the local economy as a weaker currency make Australia’s expoets such as iron ore (The country’s biggest export) much cheaper and attractive to foreign buyers searching for bargains in these troubled times.
By troubled times we mean the coronavirus and the devastating effects that it has had on not only the Australian, but the world economy as a whole and now the threat of a worldwide recession is looming which leaves very few customers for Australian exports no matter how low the price goes
"The Australian dollar is not acting as a shock absorber for economic growth right now," said IFM Investors chief economist Alex Joiner.
"That is because usually when it is weaker, it makes our goods and services less expensive in foreign currency and increases demand. That demand is simply not there."
A second reason the Aussie dollar is not acting as a shock absorber is because in the current climate, local businesses lack the financial power to source locally made goods in favour of foreign one’s due to the decline in the Australian dollar which have made the latter goods more expensive.
"To act as a shock absorber, businesses and households have to be in a position to respond to the fall in the Aussie by switching from foreign-produced goods and services to domestically-produced ones, and to prompt foreigners to buy more Australian-produced goods and services,"said Former ANZ chief economist Saul Eslake.
"But that won't be possible while so much of the economy is 'shut down', and while potential overseas markets are also 'shut down'." He added.
The Australian economy and any serious rally in the Aussie dollar depends on China, and how the country can recover after the coronavirus because until their biggest customer resumes buying commodities and other goods from Australia, the local economy is likely to be subdued for some time
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