Summary

  • The recent pandemic caused economic uncertainty in the whole world, left the Australian dollar at the lowest level in the last 17 years.
  • The Australian national GDP during the recent lockdown has made the GDP figures during the GFC very moderate.
  • Bad blood with China has had a huge impact on the levels of the Australian dollar.
  • Experts have used different indicators to predict what will happen with the Australian dollar value.
  • The most recent bushfire season will keep affecting the nation’s economy throughout 2020, costing an overall $A4.4 billion to the nation.

2020 has had a profound effect on the world’s economy, whereby most developed countries have experienced negative GDP growth for the first time in years due to the economic lockdown caused by the COVID-19.

In the context of Australia, it has been estimated that the Australian national GDP would shrink by 6.7%, which makes its GDP figures during the GFC look conservative. This poor national economic performance has led many Australians to adopt a negative economic outlook, given the provided figures, it is easy to see why.

For the first time in 30 years, Australia has officially entered an economic recession, which finally ended its 30-year-old long recession-free record. This economic downturn caused by the lockdown has also edged Australia's unemployment figures up to 7.5% (in July 2020) reflecting the 1 million jobless Australians.

To make matters worse, the geopolitical relationship between China and Australia also took a hit for the worse, when the team of Australian scientists expressed a wish to investigate the origin of the novel coronavirus, backed by Prime Minister Scott Morrison and over a hundred more countries globally.

Subsequently, this sparked a trade war between the two nations, when the Chinese government declared tariffs on the Australian export of barley. Following the economic lockdown and the above-mentioned trade war, the Australian Dollar took a massive hit dropping to a lowest figure in 17 years during the first quarter of 2020.

Steps to the future

When trying to predict the future Australian Dollar value, the industry experts have used the performance of the following factors as indicators to predict the movement of the Australian dollars against the US.

The first forecasting indicator used by the experts is the performance of the farming sector. Farming and its agricultural processes make a total of 3% of Australia’s GDP, however this figure is further extended to 12%, if value adding processes are included.

It is also worth mentioning that 67% of Australian exports come from the rural areas, however even before the coronavirus ended up on our shores, Australia experienced one of the worst bushfires in years. According to ecologists, the 2019 bushfires resulted in the destruction of 10 million hectares of land.

The Black Summer also affected sheep and cattle as the figures both in NSW and Victoria estimate that around 2% of the total population of sheep and cattle were lost. The low rainfall also resulted in an unfavourable irrigation outcome, whereby the 2019 wheat and cotton averages fell down respectively by 47% and 81%.

Experts have concluded that the cost associated with the bushfires would cost above $A4.4 billion, and that the impact on tourism and GDP will be felt throughout the year. Professionals argue that the costs associated with the natural disasters will lead to a lower GDP, hence further stalling the AUD growth.

Trade war

One of the things that could affect the money value is also the political situation of the issuing country.

The current situation with China and Australia’s trade agreement is not doing any favour to the Australian Dollar. In a normal situation, China imports about one quarter of the whole beef produce in Australia, alongside seafood products such as lobster and salmon. But in the light of recent events, the Chinese government stated they will be stopping further imports due to the alleged poor hygiene and maintenance of the meat. In the long run, this could cause more uncertainty for the Australian economy, but the experts are not too worried because the Chinese economy has experienced positive numbers in the last financial quarter.

Predictions

According to the Big Four Banks (WBC, NAB, CBA and ANZ) the coronavirus pandemic will most likely cause an even bigger fall of the exchange rates for the Aussie and New Zealand’s dollar. The Canadian currency is not predicted to have a much brighter future.

Experts thought that the US dollar value will increase, but surprisingly to many, it has been shaken down and took a big hit, most likely because of the very high number of the COVID-19 cases.

Victoria’s recent lockdown and strict curfews will scar Australia, but economists and the government hope that the extended stimulus package will help as much as possible.

As the whole world is currently experiencing unprecedent times, it is hard to know what will happen for sure. Most of the countries are going through a slow economic recovery and the future seems to be bright.

When it comes to the Australian situation, it was not as bad as the European hotspots. The stimulus is still here and will remain longer than expected, and China is expected to have a high demand for Aussie commodities because they are already doing better after their outbreaks. It will be important to stay patient, most importantly for the world leaders, and keep the economy alive and steady.

 

There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

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