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BERITA BAHASA INDONESIA
TOK PISIN
Topic:Currency
The Australian dollar dropped below 60 US cents during the pandemic, but not for too long. (ABC News: Giulio Saggin)
The Australian dollar has fallen to its lowest level against the greenback since the height of the pandemic.
Lower commodity prices and expectations the Reserve Bank will need to aggressively cut interest rates are devaluing the local currency.
Currency traders are now waiting for any signs of how China will respond to Donald Trump's latest tariffs, which came into effect on Wednesday afternoon.
The Australian dollar has been dragged back to its lowest levels since the pandemic as tariff fears grip global financial markets.
On Wednesday morning, the Aussie dollar dipped as low as 59.15 US cents — its weakest point since March 26, 2020.
It's also lower against other major currencies.
Currency analysts say the latest depreciation is related to fears around China's economy, given it's Australia's largest trading partner.
"The potential for a whopping 104 per cent tariff on China's exports to the US is a headwind for AUD because China is Australia's largest trading partner," Commonwealth Bank economists noted.
"Talks are underway with Japan, South Korea and Italy to negotiate lower tariffs."
At 2:45pm AEST, the Australian dollar was firmer around 59.6 US cents as the latest tariffs came into effect.
InTouch senior FX strategist Sean Callow told ABC News that Tuesday's recovery for the currency was punctured by the renewed focus on China, ahead of the scheduled 2pm AEST implementation of the Trump administration's tariffs.
China's yuan fell to its weakest level since 2023 on Tuesday, with analysts noting the country's central bank was loosening its grip on the currency to counteract the blow to its exports.
The Australian dollar spent only around week below 60 cents in March 2020, amid the global pandemic panic.
The Australian dollar is also considered a so-called commodities currency — that is, its value is derived from the performance of commodities, which all fell heavily overnight.
With trillions of dollars wiped off global markets, the impact extends beyond stock exchanges into the broader economy. Here's why the effects have a much quicker transmission process into our everyday lives than they once did.
Crude oil prices fell 2 per cent, while Iron ore also dropped 2 per cent to sit at $US97.44 a tonne.
But perhaps the biggest longer-term driver of the Australian dollar is local expectations for the direction of interest rates.
AMP economists say the longer tariff confusion and fears persist, the more aggressive the Reserve Bank will need to be in its monetary policy.
"When considering where interest rates will settle, it can be useful to consider Australia's 'neutral' interest rate which is the level of the cash rate that will 'neither stimulate not restrain demand' (according to the RBA)," AMP's deputy chief economist Diana Mousina said.
"According to recent RBA estimates and subsequent analysis done by CBA, this is somewhere around 2.9 per cent, which is down from prior estimates of 3.5 per cent."
Ms Mousina said the current level of the cash rate, at 4.1 per cent, remains "restrictive" for the Australian economy.
"It does not mean that interest rates will settle at the level of the neutral cash rate, it just means that interest rates do have further to fall from here, to move out of being highly restrictive for the economy.
The new US tariffs have wreaked havoc on global markets but there could be a silver lining for Australian homeowners, with the big four banks changing their bets on when the RBA could deliver the next rate cut.
AMP has forecast 0.25 percentage point rate cuts in both May and August this year and expects the cash rate to end 2025 at 3.6 per cent, before eventually declining to 3.1 per cent next year.
Ms Mousina sees the potential for four more rate cuts this year alone and said a half a percentage point cut can't be ruled out at the May meeting, "as a form of insurance against any recession risks."
Analysts though say if China responds to tariff threats by injecting huge amounts of stimulus into its economy, the Australian dollar may lift against the major currencies.
Deutsche Bank currency strategists believe Wednesday morning's Australian dollar sell-off was "excessive".
Deutsche Bank currency strategist Lachlan Dynan told ABC News the Aussie's weakness is "hard to square" against the fact Asian economies that are similarly or more exposed to China — with many also facing direct US tariffs averaging 20 percentage points higher than Australia.
"The trade intensity of the [Australian] economy is also a lot less than many peers, and we think the domestic economy has evolved more independently of China's in recent years.
"How you enter a period of turbulence is often important in dictating how you emerge.
"Australia's economy is broadly healthy, the economy is less dependent on global capital inflows compared to the past, and the federal government has ample fiscal space to help offset the hit to growth and sentiment should that be required," Mr Dynan said.
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AEST = Australian Eastern Standard Time which is 10 hours ahead of GMT (Greenwich Mean Time)
Australian dollar dives as analysts warn of potential 'mayhem' – Australian Broadcasting Corporation
