Australian dollar is so low

3 Big reasons the Australian dollar is so low

Australian dollar is so low

 

There are 3 main reasons the Australian dollar is so low and they are all have one thing in common - China. China is Australia's largest trading partner, not just for commodities like iron ore and coal but also for our other important exports like tourism and education.

  1. The impact of the coronavirus in China has disrupted the Chinese economy, lowering the demand for commodities
  2. Chinese student and tourist numbers have drastically fallen
  3. Market panic has made 'safe haven' currencies like the US dollar (USD) stronger and 'commodity' currencies like the Aussie dollar weaker

1. The Chinese economy and the coronavirus

One of the main reasons the AUD to USD exchange rate is falling is the drop in commodity prices and demand for the commodities that Australia produces, like iron ore and coal.

The COVID-19 virus has disrupted the Chinese economy, shutting down factories and halting infrastructure work in a manner we have never seen before. Also, quarantines in place have contributed to a sharp decline in the amount of commodities they need to import from Australia.

The Australian economy is impacted by many different drivers. Commodity exports to China make up a big portion of the economy so a drop in these exports, directly impacts the Australian economy and drives down the value of the currency. This has a negative impact on the Australian dollar exchange rate.

Australian dollar is so low

2. Chinese students and tourists stay at home

Outside of bulk commodities like iron ore and coal, Australia's biggest exports are

  • Education
  • Tourism

The coronavirus has had a massive impact on both the international education sector and international tourism in Australia. Visitor numbers for study and travel have plummeted, not just from China but from across the world.

This has reduced the demand for Australian dollars and pressured the exchange rate lower.

Australian dollar is so low

3. Market volatility

The Australian dollar often falls when financial markets are volatile because

  • Global investors and market participants tend to buy 'safe haven' currencies like the US dollar, Swiss Franc and Japanese Yen. This makes those currencies stronger but can send the Australian dollar exchange rate against those currencies down
  • The same market players tend to sell 'commodity' currencies like the Australian dollar, Canadian dollar and South African Rand which can lead to a fall in their exchange rate

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