The coronavirus outbreak has thrown many nations into a state of economic slowdown. The pandemic has ruthlessly restricted global trade flows given the decreased demands from China. Currencies including the world’s strongest – the US dollar – have not been spared.
However, the Australian Dollar seems to be making attempting a comeback, after yielding to the weight of the coronavirus-induced economic fallout. The Aussie recently registered a slight come back that was fueled by data from China’s manufacturing sector, particularly the Purchasing Managers Index (PMI). However, the U.S dollar is still holding strong, thus cooling the AUD’s rally attempts.
February’s PMI was at 35.7. There was an expectation that it would hit a record of 44.8 in March despite the raging storm of coronavirus but in a surprise move, it came in at 52.0. This signifies a huge contraction to the manufacturing sector.
The Australian Dollar can be the Chinese-economy proxy bet
Australia has been reporting an increase in the number of people infected by the coronavirus. So far more than 700 confirmed cases have been reported. Australian politician Steven Miles released a statement confirming the increase in the number of people infected with the virus, but he also noted that the country is working towards containing the viral outbreak.
Australia conducts a lot of business with China. This explains why the AUD is experiencing bullish momentum now that China’s economy is on the path to recovery. Australia also happens to be one of the major iron ore exporters, hence it is a hub for foreign exchange. Records indicate that the global iron ore traffic has increased to 28% thus supporting the AUD’s rally.
Australia is experiencing its first recession in decades
Australia has not suffered from the recession in decades but the economic slowdown caused by the coronavirus outbreak has been pushing the country’s economy to its knees. David Plank, the head of economics at ANZ Bank believes that the current situation will lead to a higher unemployment rate. The only hope now is that the coronavirus threat will be subdued, so that the financial markets will have a chance at a bounceback.