The Australian dollar has fallen to its lowest level since 2009 as the deadly coronavirus continues to spread which is causing severe disruption to the business chains between China and Australia which is likely to weigh on commodity prices which is so important for the Australian economy.
The Chinese city of Wuhan is currently under lockdown which is causing concerns about how a slowdown in China will affect Australia and especially if the lockdown is applied to other cities.
Any slowdown in China is likely to reduce demand for Australian commodities like coal and iron ore, which is Australia’s biggest export.
“The Aussie is absorbing a lot of bad news from its number one trading
partner. There’s been a very steep fall in Australia’s key commodity prices since mid-January, which was the peak of our export prices.” Said Westpac senior currency strategist Sean Callow
“The ripple effect is huge on the commodity side and obviously there’s a grave threat to Australia’s service exports from the travel restrictions on Chinese nationals, I was surprised the Aussie held up as well as it did early last week but it’s starting to see a bit more downside now.” He added.
The Reserve Bank governor Philip Lowe last week lent some support to the Australian dollar by keeping interest rates on hold at 0.75 per cent while at the same time presenting the Australian economy in a brighter than expected picture which led some to believe the latest interest rate cutting cycle may be coming to an end
But news out today shows the market expects an interest rate cut in May with odds standing around 50 per cent which on top of the virus fears is only going to put more pressure on the Australian dollar.
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