Over the course of the last 30 days the Australian dollar has performed well across the board compared to most major currencies, against sterling in particular, gaining over 5% in value from the high compared to the low since the middle of April. One of the main drivers behind the Australian dollar’s strengthening has been how well the country has managed to control the spread of COVID-19 compared to many other nations.
During yesterday’s trading however, the Aussie dollar began to show signs of coming under pressure as employment data showed the impact that lockdown measures have had on the economy. The numbers which were released yesterday highlighted a record number of job losses due to Coronavirus lockdown measures and the temporary pause of activity in many industries.
The official numbers on Thursday from the Australian Bureau of Statistics exposed that almost 600,000 jobs were lost during April and this is the largest fall on record for the nation. In addition, unemployment also rose sharply to over 6%, highlighting the greatest figure in almost 5 years. Speaking after the release of the data, Prime Minister Scott Morrison stated, “This is a tough day for Australia, a very tough day. Terribly shocking, although not unexpected.”
Although the impact on the economy has clearly been significant, the low number of infections and deaths as a result of contracting the virus show that the lockdown measures imposed have helped slow the spread of the virus more effectively than many other nations, especially Western Europe. PM Morrison reiterated on Thursday that the success of the country’s handling of the virus means that the plan to remove all social distancing measures by July remains in place. The feeling is that this will significantly help increase Australian GDP and could therefore help the AUD strengthen as a result.
Beijing Retaliate Against Australia’s Proposed Enquiry Into China’s Role in the Spread of COVID-19
Another factor in the faltering of the strength in the Australian Dollar during yesterday’s trading could be attributed to a breakdown in relations between Australia’s largest trade partner, China. Earlier this month, PM Morrison called for an enquiry into China’s role in the origins and initial spread of Coronavirus. Since then China has not reacted well and earlier this week, they suspended the export licenses of some of Australia’s biggest beef exporters and put forward a proposal of tariffs of 80% on Australian barley shipments and there are fears that there could be more retaliations to come.
A significant breakdown in Australia-China relations could be catastrophic for the economy in Australia and would likely lead to a softening of AUD. In the year end to June 2019, two-way trade between the nations stood at A$235bn and China took almost 40% of all Australian exports last year. For anyone with an AUD requirement, any developments in this story are likely to cause significant volatility in the value of the currency. Our experienced team of traders monitor these swings in the currency’s value and can provide you with regular updates on how your currency transfer needs are being affected.
Australian Dollar Forecast Ahead: Trump Interview Could Heighten US-China Tensions
The conflict with China doesn’t end in Australia, with Donald Trump stating on Thursday that he was disappointed with China’s failure to contain the Coronavirus and that the situation could ruin the recently agreed US-China trade deal. In an interview with Fox on Wednesday that was aired yesterday, Trump said, “We have a lot of information, and it’s not good. Whether it came from the lab or came from the bats, it all came from China, and they should have stopped it. They could have stopped it, at the source. It got out of control.”
A further breakdown in relations between the US and China is likely to add to what is already a time of great uncertainty and has the potential to create volatility in the currency market, particularly ‘riskier’ currencies such as the Australian Dollar.
With no data released today from Australia, clients with an AUD requirement may want to keep an eye on the Reserve Bank of Australia’s minutes from their latest interest rate decision in the early hours of Tuesday morning. Rates were kept at the historic low of 0.25%, but any insight in to the decision and future monetary policy could cause swings in the value of the Aussie. Get in touch using the form below for more information about how these factors are likely to impact your currency exchange.