The Australian dollar has fallen significantly, falling below 62 US cents on Wednesday and hitting a low of 61.84 US cents on Thursday morning.
Despite a modest recovery on Friday, the currency has been on a downward trend since September 2024 when it was at 69.32 US cents. It is the first time since 2022 that the Australian dollar has fallen below 62 US cents.
Economists attribute the weakness of the Australian dollar to the strength of the US dollar and instability in the Chinese economy. The US dollar has strengthened in recent weeks, helped by the Federal Reserve’s interest rate cuts.
Meanwhile, the value of the Australian dollar is heavily influenced by commodity prices, which are linked to China’s economic performance. Independent economist Nikki Hutley explained that if China’s economy is weak, demand for Australia’s exports also falls.
For travelers, a weaker Australian dollar means higher prices, especially compared to currencies like the British pound.
On Thursday, the Australian dollar bought just 0.49 pence. Hutley advises travelers to use currency conversion tools to manage spending and avoid unexpected charges, especially when using credit cards abroad.
A weaker dollar could also affect interest rates in Australia. The Reserve Bank of Australia (RBA) is closely monitoring inflationary pressures from a weaker currency, although the exact impact on interest rates is uncertain.
In December, the RBA hinted at the possibility of a rate cut in February, but economists, including Sean Callow from InTouch Capital Markets, suggested that a weaker dollar could fuel concerns about inflation, possibly leading to an RBA decision. can affect
Hutley noted that while the RBA may have already factored in a weaker dollar when discussing its plans for late 2024, the competitiveness of Australia’s exports could offset some of the inflationary impact.
However, continued weakness in the Australian dollar and potential global changes, such as changes in US interest rates, could complicate rate cut decisions.
Looking ahead to 2025, there are concerns that external factors may continue to weigh on the Australian dollar.
The incoming US administration, led by President-elect Donald Trump, has threatened to raise tariffs on Chinese imports, which could further weaken the Chinese economy and put additional pressure on the Australian dollar. If tariffs rise as expected, analysts say the Australian dollar could fall below 60 US cents.
The fortunes of the Australian dollar will largely depend on developments following Trump’s inauguration on January 20.
Although the outlook is uncertain, Hatley cautioned that the situation remains volatile. While the Australian economy may be starting to stabilise, challenges such as global economic changes and rising tariffs could pose risks to the currency and the wider economy in 2025.