The Australian dollar continues to experience the fallout caused by the coronavirus as it tumbled to a 17 year low in yesterday’s trading session against its US counterpart, and there is little reason to believe the currency will recover any time soon.
A weaker Australian dollar normally helps the local economy with increased demand for domestic products such as Iron ore and services which includes the tourism sector. The coronavirus outbreak means the usual benefits that a lower Aussie dollar provides will now be put on hold until there is more clarity surrounding the issue.
"A lower Aussie dollar is good when global growth is good because we have demand for our goods at a cheaper price” said IFM Investors chief economist Alex Joiner
"The most stark example of that has been services exports, with tourism and education much less expensive. In the current environment, there's just no demand for those services and no scope for those services given the travel ban." he added.
The Reserve Bank of Australia is expected to cut interest rates on Thursday to a new low of 0.25 percent on Thursday afternoon to support the Australian economy which has been in free fall since the inception of the coronavirus.
The central bank is also expected to announce measure on introducing a quantitive easing program, following in the footsteps of the US as an added measure to support the economy.
These moves may help the local economy to a certain extent, but the biggest worry is China, Australia’s largest trading partner and how long it will take to recover economically, which according to some analysts, will take an extended period of time.
"The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilization has begun. It is difficult to measure how much output will be permanently lost as a result of COVID-19" said S&P chief economist Paul Gruenwald said.
"While the focus now (In China) is rightly on containing the virus and measuring its downside effects, the strength of the eventual recovery will depend crucially on how much output can be replaced." He added.
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