As the global COVID-19 crisis deepens, the AUD has continued to see its value decrease against most of the major currencies in recent weeks.
This could not be more apparent than against the USD, which has gained over 20 cents against its AUD counterpart in the last month.
To put this in monetary terms if we took the relevant interbank values from today and one month ago on a 100,000 USDAUD exchange, the increase in monetary value would be approximately an additional 20,000 AUD.
The Australian economy has seen a sharp downturn in recent weeks due to their direct trade link to China, and a fall in Chinese demand for the export of Australia’s raw materials. The AUD has also seen its value decrease due to its status as a commodity-based currency, which historically has seen its value fall in times of global economic uncertainty, as it is considered a riskier asset by investors.
If we also take into consideration the unique and unprecedented situation the global economy is currently facing as a result of the COVID-19 outbreak, then the current uncertainty and sharp downturn for AUD is perhaps more quantifiable.
If we also look at the recent trend on other commodity based currencies such as NZD and CAD, which have also seen their values fall sharply in recent weeks, it reinforces this notion and backs up the historical trend discussed previously in this blog.
Whilst China seems to have reached, and perhaps even surpassed its peak in terms of the COVID-19 outbreak, we are yet to see an upturn in demand, which based on the historical trend, may be required in order to help calm some of the markets current fears.
As and when this upturn does occur it may help to “steady the ship” so speak and help curb further losses for the AUD in the short-term.
Looking at the US economy and the US Federal Reserve have today announced that it will increase its current stimulus measures by significantly increasing its asset purchasing programme. Whilst this has led to a sell-off of USD by investors against some of the major currencies, its on-going status as a safe haven currency in time of global economic downturn, is helping to support its value against the AUD around the current levels.
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