Australian Dollar Outlook: Coronavirus Spreads

US Dollar Strengthens After Further Stimulus Promised by the Federal Reserve

The GBP to AUD interbank exchange rate has strengthened, in part because China, Australia’s closest trading partner, continues to struggle with a coronavirus.

According to the latest reports, 1,975 people are now infected with the disease, four times more than last week, while 56 people have died. In response, China is quarantining off increasingly large parts of its territory, and seeking a cure.

The coronavirus resembles the SARS that killed close to 800 people in 2003. This has weakened the Australian dollar, first because if the coronavirus affects China’s economic confidence, Chinese imports of Australian goods might fall.

If China quarantines itself off, fewer Chinese could visit Australia as tourists this year, thereby weakening Australia’s tourist industry, and weighing on economic growth Down Under.

Australian Q4 inflation due, could influence RBA, affect Australian dollar

Looking to this week, Australia’s inflation statistics for Q4, between October and December, are released this Wednesday 29th January at 00.30 GMT. These are forecast at 1.7%, the same as Q3, and still slightly below the Reserve Bank of Australia’s (RBA) mid-point target of 2.0%.

These figures are important, because they’re the last key piece of economic data to be released, ahead of the RBA’s interest rate decision on February 4th.

If inflation rises above predictions, this may encourage the Reserve Bank to hold interest rates at 0.75%, although if inflation disappoints, the RBA may consider it prudent to reduce borrowing costs, to a new all-time low.

This is especially the case, given both the ongoing bush fires Down Under, and China’s coronavirus, both of which might weaken Australia’s economy in coming months.

For more information on AUD exchange rates for an upcoming currency transfer, you can email me, Daniel Johnson, using the form below.