The Australian dollar sunk to a 4-year low on Wednesday; the lowest the currency has traded since March 2009. Investors continued to price up the possible cost to the global economy that the spread of the coronavirus could incur. However, strategists at Westpac have noted that the risk-sensitive currency is “not cheap”. The Aussie dollar is amongst the most at risk currencies on the global trading market, given the strong trading ties between Australia and China. Combined with this, AUD also has a broader exposure to commodities which when combined with the COVID-19 virus, explains how the currency has managed to fall 6.2% against the US dollar and 4.43% against the pound this year.
AUD suffers heavy losses as coronavirus continues to keep fears high
The Australian dollar was down against USD at 0.6574, which saw a fall of 0.46%. Whilst the pound to Australian dollar exchange rate was up 0.28% at 1.9728 as investors continued to flock to safe haven currencies like the US dollar. A move which has pushed major economy bond yields to record lows since Sunday’s open as countries across the globe reported more confirmed cases of the COVID-19 virus.
Westpac highlights AUD downfall
Sean Callow of Westpac has stated that he believes the Australian dollar has fallen sharply in recent weeks as a direct result of multiple headwinds which include the drought, bushfires and more recently the spread of the coronavirus. He added that he would argue the drop in AUD is in line with where ‘fundamental’ drivers suggest the currency should be. He noted that the midpoints of AUD’s short-term fair value model sits at around 0.6590.
AUD expected to continue to spiral as coronavirus spreads across the world
The coronavirus started out in China, but now countries across the world are reporting confirmed cases of the virus as far as Italy, with a significant number of cases popping up in South Korea, Iran, Austria and Spain to name a few. The widespread reach of the virus has ramped up investors fears as Americans were prepped to expect the disease to reach and spread over the US in the weeks to come. Though cases are visible now outside of China, the economic effects of the virus haven’t been fully witnessed as Europe has only caught its first glimpse of the disruption that was seen in China, but epidemiologists say the only reliable method for preventing transmission is quarantine, which has been observed in Italian regions like Veneto and Lombardy.
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