The Australian dollar has slumped back below the US67c mark in today’s trading session as fears grow about the spread of the coronavirus which is wreaking havoc on the price of commodities such as Iron ore that is such a vital ingredient for the Australian economy.
The price of iron ore, which is Australia’s biggest export is down by more than12%, while oil is more than 20% off the price it hit at the beginning of the year ,which is a direct result of the virus that has caused panic and severe damage to the economy in China.
"It is not surprising that the coronavirus could have such a marked impact on the Australian dollar in such a short time. China is our number one trading partner and, even if the outbreak is contained by the end of the fi rst quarter, the shock to growth will be substantial," says Elliot Clarke CFA, an economist at Westpac.
"With regards to fair value for the Australian Dollar, the net effect of commodities over the past two months is then negative” he added.
The virus, which follows the ravaging bushfires is the second big negative event to hit the Australian economy in recent months and some say that on top of cutting interest rates further, the Reserve Bank of Australia will probably have to introduce some sort of quantitive easing plan as an added protection to breath some life into the economy.
This double whammy is going to put the Australian dollar under a lot of pressure and further losses over the coming months are likely
"Having cut the cash rate to 0.25%, we continue to forecast that the RBA will embark on a QE program that will last for at least a year from late-2020. Absent this step, Australia’s competitiveness and corporate profitability could become impaired, and the lift back to trend GDP growth that we anticipate for 2021 (led by an emerging upturn in home building activity) may prove a stretch," Mr Clarke said.
"The other factor holding the Australian dollar down through the remainder of 2020 is a further broad-based decline in commodity prices." he added.
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