Australia’s dollar had been touching 17-year lows of US58¢ in the middle of March amid a global rush to defensive assets such as the US dollar and gold, while risky assets like equities were sold off.
Since then, the Aussie has improved by nearly 18 per cent to reach the four-month high of US68.13¢ on Tuesday, just a few cents below the highs reached at the start of this year.
Westpac senior currency strategist Sean Callow pointed out all G10 currencies are now stronger against the US dollar than they were on 23 March when markets bottomed. The recent weakness in the Australian dollar has also helped the economy throughout the economic shocks of the COVID-19 lockdown, making Australian goods more attractive overseas.
However, the economy will miss out on one traditional benefit of a weaker currency, with tourists and international students still locked out of the country.
On Tuesday, the Australian Bureau of Statistics revealed $8.4 billion current account surplus in the first three months of the year. It was the fourth successive surplus. This was due to higher prices for Australian exports and a sharp drop in imports.
“With the world economy in the early stages of a long recovery, led by Chinese fiscal stimulus, the prospects for commodity currencies such as AUD/USD have brightened,’’ Commonwealth Bank currency strategist Joseph Capurso wrote in a note to clients.
However, the dollar’s rise could create a headache for the Reserve Bank, which had been enjoying its weakness as an extra economic stimulant. The RBA board kept rates at emergency low levels of 0.25 per cent at its meeting on Tuesday, despite some pleas for Australia to follow other countries to negative rates.