The Australian Foreign Minister Marise Payne has challenged China over their behaviour surrounding the COVID-19 calling for a global review into the Chinese and their actions. The Chinese Ambassador to Australia Cheng Jingye has met this request by suggesting the Chinese would consider a boycott of Australian goods and encourage their tourists and university applicants to venture elsewhere. Clearly this has been considered somewhat of a threat and does come with the potential cost of hundreds of billions to the Australian economy. Australian exports to China make up for 25% of their total exports, with them growing by 10% year on year. The Foreign Minister also pointed out that there is far too much of a reliance on China and they should look into reducing their exposure.
The Aussie dollar has gained over 5% in the last week against sterling as Australia finds its economy returning to normal. The outbreak in Australia has been considerably more subdued compared to the UK, and economic mortality could be something that comes back an awful lot quicker, which points to more Aussie strength. However, if this situation with China does become a major situation and the war of words continue that could put pressure on the Aussie.
Australian Economy Heavily Reliant on Trade Ties With China
The raw materials that Australia export to China are made up of huge quantities, and there is an argument that there may not be other countries that have a requirement to pick up a drop in orders. This will certainly be a story to keep an eye on. In general China is going to come under pressure from around the world with regards to their handling of COVID-19, as clearly there are questions that global leaders will want answering. The global economy does rely heavily on manufacturing in China and in the short term it seems difficult to see how there are many alternatives. However, as the lockdown continues consumers may start to from their own judgments on how they shop going forwards.
If there was to be a slowdown in the amount of goods purchased from China that would have a major effect on the Aussie, with any bad Chinese data seeing the AUD fall. The fallout from COVID-19 has inflicted a huge amount of damage on the Australian economy, which has probably been far worse than any fallout from the Chinese boycotting them. It would not be surprising if this battle continued into the future.
Get in touch to find out more about how these political and trade tensions between Australia and China is likely to have a profound impact on the Aussie dollar, as it has done in the past. You can contact me using the form below, I’ll be happy to get respond personally and discuss your enquiry.