After plummeting to a near 20 year low of US55c against its American counterpart in mid-March due to the devastating economic effects of the coronavirus, the Australian dollar has made a remarkable recovery over the last 2 months, and is trading today at US65c but the trouble brewing with China may see the rally come to an end.
Australia has done a remarkable job in containing the coronavirus which has seen the country with one of the lowest death tolls and infection rates in the world and has allowed parts of the country to reemerge from the lockdown and open for business which has been one of the main drivers behind the swift recovery of the Aussie dollar.
The solid recovery is now under threat under a number of fronts concerning China with the first being the ongoing tensions with the world’s 2nd largest economy and the US over the origin of the coronavirus which has led US Donald Trump to threaten China with economic hardship if they don’t come clean on the origin of the virus.
Australian Prime Minister Scott Morrison, seemingly siding with Trump has joined world leaders into calls for a thorough inquiry as to where the virus originated which has angered China and many speculate was the reason they recently slapped tariffs on Barley and meat imports from Australia.
This is bad news for the Australian economy as China is Australia’s biggest trading partner and now there are grave concerns that further tariffs will be introduced which will target coal and Iron ore, Australia’s biggest export.
If these commodities are hit with tariffs the Australian dollar and the economy overall is likely to get hit hard with a major correction.
"Further signs of a worsening in the relationship between Canberra and Beijing are raising concerns that more Australian exports could be at risk from tariffs or other retaliation from China," Jane Foley, Senior FX Strategist at Rabobank
"If coal or iron ore, Australia’s biggest export goods, were considered to be the subjects of Chinese retaliation, the risk to the country’s economy and to the AUD would be accentuated," says Foley.
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