Inflation remains low and the Australian Dollar faces key CPI data, Coronavirus will blunt its impact. This is good news for most investors. But this doesn’t mean it’s the end of the road for the Australian Dollar.
The weak currency continues to persist as the dollar remains strong despite the strength of the US economy.
People remain cash strapped because of the exchange rate differential. However, as strong dollar rises, so does the Australian Dollar.
The weakness in the dollar is explained by a combination of weak industrial production, weaker mining output and strength in the US economy. This is an environment which makes investing in a good bet and the Australian Dollar has been relatively stable. More economic indicators point to stronger growth and a stable currency.
The index of essential commodities, which includes food, energy and other goods, in key inflation data points to low inflation. The price of oil, the country’s major export commodity, has been steady, which may ease some concerns over weakening commodity prices. The continued low rate of interest on housing loans points to stable investor sentiments, especially as the value of the currency is boosted by low levels of interest rates.
Even the Australian government is showing its cautious side, with a softening of its hard line on currency movements in response to the strong dollar. However, the government is keeping a close watch on political developments in China’s monetary policy. This reflects the thinking of the Australian government, which sees a low rate of interest as a temporary factor which can be unwound soon.
Nevertheless, the Australian dollar continues to be weak. This is a result of a combination of a weak exchange rate, a strong dollar and other factors. Coronavirus and Coronaviruses weaken the impact of any strong index numbers and boost the strength of the Aussie Dollar.
The index of essential commodities in key inflation data points to a relatively benign environment for the economy. Oil prices are expected to remain at low levels in future. This makes investing in agricultural, mining and manufacturing commodities more profitable.
Strong dollar is a factor that strengthens the resilience of the Australian dollar. In addition, weaker commodity prices are also hurting Australian farmers. Meanwhile, the weakness in the dollar is helping Australian manufacturers to offset their increased costs in raw materials.
However, Coronavirus will continue to weigh on the Aussie Dollar. The RBA will be looking to channel more funds into the economy through monetary policy, rather than stimulus measures. At this stage, however, the effects of the next Australian tax announcement will further weaken the currency.
The effect of Coronavirus on the currency is not much. A low index of essential commodities, low, natural resources prices and a weak currency all support the Aussie. This has been the case throughout this volatile period.
But with Coronavirus, it’s the opposite. The commodity price index is strong and the dollar is weaker. The main beneficiaries are the retailers and exporters of materials.
The main reason for this is the recent announcement by the RBA, which is likely to hike the official cash rate later this month. While this may cause a tiny decrease in the Sydney dollar, the effect is offset by Coronavirus, and this weakens the Australian Dollar.