Aussie dollar hits four-month low

Beef Central, 29/01/2020

THE Aussie dollar has lost about four percent of its value against the greenback since the end of 2019.

Concerns over the impact of China’s Coronavirus outbreak on the Australian economy is the latest contributor to the currency slipping to a four-month low against the US$. During early trading this morning, the A$ sat at US67.5c, but fell as low as US67.37c overnight.

The Aussie dollar remains under pressure this year, off the back fears about global economic growth, the impact of January’s bushfires on the economy and expectations of future Reserve Bank of Australia rate cuts.  The currency continues to be weighed-down by falling commodity prices, volatility in broader financial markets, concerns about Chinese economic health, as well as stubborn issues plaguing domestic growth.

The NAB Business Confidence survey released yesterday revealed that business confidence in December fell to negative-two last month, its lowest point since 2013. A bright spot in the survey remains the employment index, which at +4 index points is above average and implies reasonable ongoing employment demand.

The Chinese Yuan is also sharply lower against the US$ this week in light of developments surrounding the alarming Coronavirus outbreak sweeping the country.

The A$ is often treated as a proxy to the Chinese Yuan, analysts said yesterday, as it is a large, liquid and freely-traded currency that has notable exposure to China owning to the strong trade links between the two countries.

Reports yesterday suggested the Coronavirus disease is rapidly spreading in China, with more than 4500 cases in 30 provinces reported yesterday, a 50pc increase on the day before. The death toll currently stands at 106. Isolated cases have now been found in 16 countries across the world.

Stock markets around the world have been impacted by concerns over the impact of the disease on world trade in the past week. Japan’s Nikkei on Monday lost 2pc of its value, and markets in China, South Korea, Singapore, Australia and India were also affected.

The speed at which the virus is spreading is a likely catalyst for market and currency volatility this week, reflected in equities losses and commodities price swings, an analyst said.

What happens to the Yuan going forward will likely determine the performance of the A$, one analyst said.

The correlation between the A$ and the Chinese Yuan did appear to have broken down towards the start of 2020, as the Australian bushfires captured market attention and gave the A$ some independent weakness.

“That correlation does, however, appear to have reasserted itself over recent days and therefore the Yuan could well be expected to dictate the direction of the A$ over the coming week,” an analyst said yesterday.

“What happens in China with regards to the Coronavirus is therefore key.”

“Whether and to what extent the disease may possibly cause a humanitarian crisis remains to be seen, but adverse effects on China’s domestic economy are likely to be unavoidable. Due to the incalculable circumstances, investors are significantly reducing their risk appetite.”

The market appears to have little confidence in the measures already taken by the Chinese government, the analyst said. As a result, demand for safe-haven currencies should remain consistently strong for the time being.

The influence of the virus can be expected to accompany the financial markets for some time to come,” said MAF Global Foreign Exchange’s Marc-André Fongern.

The economic impact of the virus will initially be felt in travel-related and retail industries, but could quickly extend into others. The Chinese government has this week banned all group tours from travelling outside the country, beginning Monday. Tens of millions of Chinese travel abroad during the Chinese New Year holiday period, which began last weekend, and the current ban is likely to seriously impact Chinese economic activity.

“No one knows how bad things could get moving forward,” said Ipek Ozkardeskaya, an analyst at Swissquote Bank.










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