The Australian dollar tumbled to its weakest level since the financial crisis as investors continued to weigh the impact of the coronavirus on economic growth in China, Australia’s biggest trading partner.
The currency, typically regarded as a proxy for Chinese economic growth, fell as much as 1 per cent to $0.6662 in New York trade on Friday morning, the lowest level against the greenback since March 2009.
Potential fallout from the coronavirus, and the adverse impact it is likely to have on economic growth, is the latest threat to Australia’s growth outlook, which is also going to take a hit owing to a catastrophic bushfire season.
The rapid spread of the disease has prompted countries all over the world to quarantine travellers from China, while airlines have suspended flights to and from the mainland. Combined with the bushfires, that represents a threat to the health of the Australian tourism industry, which contributed about $61bn to gross domestic product in 2018-19.
Concerns about the virus outweighed a surprisingly upbeat outlook on the Australian economy, which was provided by the country’s central bank earlier on Friday in its closely-followed quarterly statement on monetary policy.
The Reserve Bank of Australia said a “soft patch in growth is likely to extend into early 2020 because of the ongoing drought, the effects of the bushfires, and the effects on Australian exports of the recent outbreak of a new coronavirus in China.” Beyond those shorter-term effects, the medium-term outlook for the Australian economy is broadly unchanged from three months ago, it added.
The RBA cut interest rates three times in 2019 to a record low. That has helped revive housing prices, although the bank warned it was too early to see any response in household spending.
“The RBA’s surprisingly confident forecasts and uncertainty around what the bank views as temporary shocks impacting near term casts doubt over how they will respond,” Matthew Hassan, a senior economist at Westpac said. “The case for further policy accommodation will become clear to the RBA as its overly-optimistic expectations are not met.”
Currencies whose fortunes depend heavily on the outlook for commodity prices and global growth have fared worst against the US dollar. Among a group of 10 major developed market currencies, the Australian dollar is down 4.8 per cent so far this year, edged out only by the New Zealand dollar and Norwegian krone. Periods of risk aversion in markets are rarely supportive for these currencies, either.
Rodrigo Catril, senior FX strategist at National Australia Bank, said the Australian dollar will “struggle to perform” in an environment where the market remains concerned about the potential growth impact from the coronavirus outbreak.
“But given the global containment and China’s supportive financial measures, our bias remains for the Australian dollar to be mostly contained in a US$0.67 to US$0.71 range in the first half of this year,” he forecasts.
The Australian dollar was trading 0.6 per cent weaker at $0.6688 in late London trading.
