The Australian dollar has hit a concerning low, nearing its weakest point since the early stages of the COVID-19 pandemic.
Over the New Year holiday period, the Australian dollar dipped below 62 U.S. cents for the first time since October 2022, mirroring the struggles of late March and early April 2020.
By late evening on Jan. 2, the currency slightly rebounded to 62.15 U.S. cents, still down almost 10 percent since early October 2024.
The drop in the Australian dollar is not solely due to Australian weakness, but primarily a result of the strengthening U.S. dollar.
The greenback has risen by 7.6 percent, reaching a 26-month high against a basket of six other major currencies.
This has largely been driven by stronger-than-expected performance in the U.S. economy, coupled with a shift in market expectations around U.S. interest rates.
Economist Saul Eslake explained that the continued strength of the U.S. dollar largely reflects the U.S. economy's resilience, even amid high interest rates.
"Trump's policies on tariffs, deporting migrants, and increasing the budget deficit even further will be inflationary, and hence that U.S. interest rates won't come down much further in 2025, whereas they will in other countries," Eslake told The Epoch Times.
The currency has only fallen by about 2 percent against the euro and 0.75 percent against the Canadian dollar, while it has actually appreciated against the yen, New Zealand dollar, and Korean won.
Eslake added that the Australian dollar's depreciation is not entirely negative. It benefits exporters in sectors like mining and agriculture, as a weaker Australian dollar makes Australian goods more competitively priced on the global market.
However, he pointed to other factors influencing the Australian dollar's decline, such as the gradual fall in global commodity prices and China's ongoing economic struggles, which have kept deflationary pressures in place.
Esleake explained that the Reserve Bank of Australia's (RBA) Australian export commodity price index shows a nearly 14 percent drop in the value of export commodities in U.S. dollar terms from its peak in January last year.
Eslake believes that these dynamics are unlikely to trigger immediate changes in RBA policy, as the currency's fall is not yet significant enough to halt potential rate cuts.
He noted that a much more pronounced decline in the Australian dollar would be needed to prompt the RBA to reconsider its stance.
In sectors like mining and agriculture, a weaker dollar is seen as an advantage, while tourism and industries reliant on imports may face higher costs.
IG analyst Tony Sycamore highlighted that a rebound in the Australian dollar could occur if it holds above the 61.70 level, but a fall below this level could result in a further decline to 60 U.S. cents.
"Aussie had priced in a lot of bad news in a short time and could rebound from here if it managed to hold above that 61.70 level from October 2022," he said.