It is unprecedented times, there is little to draw from little as to how the market will react. What could provide insight is at is where investors are moving their funds in times of global economic uncertainty. Unfortunately, the Australian dollar is not usually the destination of choice in this kind of situation.
The Australian dollar is a commodity based currency and is considered a riskier currency in times of uncertainty. The Australian economy has close ties with the Chinese economy and if we see Chinese growth take a hit it tends to have a knock on effect to the Australian economy.
Could a Chinese Recovery Help the AUD?
One thing that can give us a clue as to the health of the Australian economy is Iron ore price. As Australia’s primary export any movement in price has an influence on the economy. We have now heard rumours that Wuhan will be released from lockdown as of 8th April, which is definitely good news. If Chinese growth starts to recover you can expect the AUD to gain in strength. For those holding euros looking to move to the Australian dollar this is a great opportunity considering the gains made over the last month. We have seen some gains for the Aussie, but this has proved not to be sustained.
Central Banks around the world continue to make bold moves in an attempt to combat an economic crisis. Christine Lagarde, President of the European Central Bank, has pledged to make changes to the monetary policy in order to cause liquidity during these uncertain times. Although this did not necessarily have the impact it would in normal conditions, huge changes can be expected as we have witnessed from the Federal Reserve.
The Fed have slashed interest rates and now agreed upon USD 2trillion in Quantitative Easing, which is the process of pumping borrowed money into an economy in order to stimulate growth.
Be aware the Australian dollar could be susceptible to further falls.
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