The Australian dollar has lost ground against the euro reaching a low of 0.5791. The Australian dollar is not considered a safe haven currency, it is a riskier commodity based currency and can prove vulnerable during times of global economic uncertainty. Australia is also heavily reliant on China as it’s largest import and export trading partner, should there be a drop in growth in China this can have an effect on the Australian economy.
The EU has now pledged €500bln in emergency support, which is welcome news for those holding euros as it should provide some stability in the outlook for the single currency, however this is deemed as far less than sufficient considering the severity of the current situation. The Federal Reserve (Fed) for example have agreed to put $2.2 trillion into the US economy.
The EU is still at loggerheads over further financial aid, with nations calling for ‘Coronabonds’ that would be taken on as collective debt. Germany, being the engine room of the Eurozone is reluctant to take on such a burden of debt, as are the Netherlands. Negotiations are ongoing as to further stimulus and although it seems an agreement may be hard to come by, if an adequately sized emergency package is put together this could bring back some investor confidence in the euro.
How Corona is handled in each area will have influence on market reaction. Be sure to also keep an eye on iron ore. Iron ore is Australia’s primary export and should there be any significant change in price as a result of global events, this could impact the currency market and Australian dollar.
Recently the Reserve Bank of Australia (RBA) chose to keep interest rates on hold even though a rate cut was rumoured, but the RBA have stated they will be watching how the Coronavirus situation progresses and will act accordingly. Although this may not have the same impact as in normal economic conditions this does have the potential to weaken the Australian dollar.
Get in touch using the form below to find out ore about how these factors could impact your AUD exchange in the coming weeks. I’ll be happy to get in touch and discuss your enquiry.