The Australian dollar has plummeted to its lowest point since 2003 – and it could be about to sink even further

The Aussie dollar trying to claw its way out of a hole.

The Australian dollar is haemorrhaging value by the day.

As the coronavirus disrupts markets around the world, the threat of a global shutdown appears to be pushing the Aussie dollar lower and lower.

On Wednesday, the dollar hit a 17 year low, buying less than $0.60 US momentarily for the first time since 2003.

While it’s since recovered slightly, the local currency has all but fallen off a cliff since the beginning of March when it was trading around $0.66 US, or 10% higher. The volatility has no doubt been brought on by fears the coronavirus could bring on a global slowdown and a break in global supply chains.

How the Aussie dollar has sunk in recent weeks (XE)

The US dollar, typically considered a more defensive currency, stands to benefit from that uncertainty, as well as major stimulus measures being taken to prop up its economy.

“AUD/USD dipped below 0.60000 overnight against a stronger USD following additional [Federal Open Market Committee] support and the prospect of US fiscal stimulus,” CBA FX analyst Kim Mundy said in a note issued to Business Insider Australia.

On the other hand, Australia, an island economy heavily reliant on imports and exports, remains exposed to that volatility, the consequences of which are only sharpened when considering the impact it has had on China, its biggest trading partner and major purchaser of exports ranging from iron ore to education and tourism.

Longer-term, it has been a steady fall from grace. Just 12 months ago, the Australian dollar was above the 70 cent mark, while a little more than two years ago, it was above 80 cents.

Right now, it seems a long time since the Aussie dollar reached the dizzy heights of 2011 when it went above parity with the greenback and was buying an inexplicable $1.10 USD. Then again, it’s also above the woeful 47 cents it bought around the time of the 2001 dot-com bubble.

Its recent downward movement comes as the Federal Government also announces unprecedented ‘level four’ travel advice on Wednesday, urging Australians to refrain from going overseas for the foreseeable future. Given the pandemic, Virgin Australia will also suspend all flights for two and a half months, while Qantas has done similarly until the end of May.

So Australians look like they won’t take a hit on their holidays, given they likely won’t be taking any international trips at all.

An anaemic Aussie dollar will have other consequences, however, making imported goods more expensive for consumers. The upside is it will provide a boost to the Australian economy, by making our own exports cheaper and thus more attractive for foreign buyers. The economic boost that could provide to the economy, at a time when Australia looks ready to plunge into recession, may prove invaluable yet.

As the coronavirus outbreak continues, it may have some way south still to go.

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