The Australian dollar look set to once again break through the US70c mark for the first time in more than a month yesterday, before being sold off sharply, as news emerged that more parts of the state of Victoria would be entering another round of the lockdown phase which rattled the markets over fears the coronavirus was once again beginning to spread.
The Melbourne metropolitan area as well as the Mitchell Shire were ordered by the government to reintroduce lockdown measures for a minimum of 6 weeks after a recent trend upwards in the number of coronavirus cases has thrown into question the Victorian government’s decision to reopen businesses which now looks to have been somewhat premature.
Up until a few weeks ago, Australia had prided itself on being one of the countries with the least amount of coronavirus cases and this allowed the economy to rebound along with the Australian dollar.
These latest developments threaten the currency’s long-term recovery, and especially if the virus starts to spread in some of the other states, which is likely to severely dent consumer confidence.
"I think the confidence channel is actually going to be more important than the actual shutdown impact." said ANZ senior economist Felicity Emmett.
"Households will realize that this is a situation where we are going to get these localized, or not so localized, outbreaks. It will mean that they'll have to change their behavior and for businesses too, it will mean a lot more uncertainty, that really will flow through to spending." she added.
Also pressuring the Aussie dollar, was the latest interest rate decision by the Reserve Bank of Australia where they opted to keep rates on hold at a record low 0.25 percent which was widely expected by the market.
In a speech after the decision, RBA governor Dr Philip Lowe sounded cautiously optimistic on the recovery of the Australian economy but said many challenges still linger, which lead many analysts to predict that rates will remain on hold for some time with the outside chance that they may fall even lower.
“The global economy has experienced a severe downturn as countries seek to contain the coronavirus. Many people have lost their jobs and there has been a sharp rise in unemployment. Leading indicators have generally picked up recently, suggesting the worst of the global economic contraction has now passed.” Mr Lowe said.
“Despite this, the outlook remains uncertain and the recovery is expected to be bumpy and will depend upon containment of the coronavirus. Over the past month, infection rates have declined in many countries, but they are still very high and rising in others.” he added.
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