China-Australia relations: how an underperforming Australian dollar could entice new trade partners
- Analysts are looking into whether the Australian dollar has started to weaken recently because of ongoing tensions with China
- When a currency depreciates, that country’s exports generally become more appealing for overseas consumers
With relations between Beijing and Canberra showing little sign of improving, Australia’s dollar has been underperforming in recent weeks, and this could work in the country’s favour when it comes to finding alternative markets that would help reduce reliance on its largest trading partner in the long-term.
After surging by 10 per cent last year as advanced economies recovered and commodity prices surged, the Australian dollar touched a three-year high of 0.7976 to the US dollar in February. But last month it was the worst performer among Group of 10 currencies, according to Bloomberg data.
Generally speaking, a weaker currency stimulates exports by making them cheaper for overseas consumers. The Australian dollar is currently trading at about 0.77 to the US dollar. But if the trade dispute with China worsens, and Chinese consumers buy fewer Australian goods, this could push down the value of Australia’s dollar.
“[It] raises the question on whether Australia can diversify its exports basket in the long run so that it becomes less reliant on shipping its iron ore to China,” said Sean Callow, senior currency strategist at Westpac, referring to the biggest driver of trade between the countries. “We are looking for any indications that the Aussie [dollar] is underperforming due to tensions from China.”
