The Australian dollar experienced a significant decline, sinking below 62 US cents on Wednesday and reaching a low of 61.84 US cents on Thursday morning.
Despite a slight rebound on Friday, the currency has been on a steady downtrend since September 2024, when it settled at 69.32 US cents. This is the first time the Australian dollar has fallen below 62 US cents since 2022.
Economists attribute the weakening Australian dollar to a combination of a strong US dollar and instability in the Chinese economy. The US dollar has strengthened in recent weeks, helped by the US Federal Reserve’s rate cut.
Meanwhile, the value of the Australian dollar is heavily influenced by commodity prices, which are linked to China’s economic performance. Independent economist Nicki Hutley explained that if China’s economy is weak, demand for Australian exports also falls.
For travellers, a weaker Australian dollar means higher costs, particularly against currencies such as 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 weak dollar could also affect interest rates in Australia. The Reserve Bank of Australia (RBA) is closely monitoring inflationary pressures caused by the weaker currency, although the exact impact on interest rates remains uncertain.
In December, the RBA hinted at the possibility of a rate cut in February, but economists, including Sean Callow of InTouch Capital Markets, suggested the weak dollar could raise inflation concerns, potentially influencing the RBA’s decision.
Hutley noted that while the RBA may have already factored in the weaker dollar when discussing its plans for late 2024, the competitiveness of Australian exports could offset some inflationary effects.
However, the continued weakness of 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 could continue to weigh on the Australian dollar.
The incoming US administration under 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 the tariffs rise as expected, analysts predict the Australian dollar could fall below 60 US cents.
The fortunes of the Australian dollar will largely depend on developments after Trump’s inauguration on January 20.
While the outlook remains uncertain, Hutley warned that the situation is still volatile. Although the Australian economy may be starting to stabilise, challenges such as global economic changes and rising tariffs could continue to pose risks to the currency and the wider economy in 2025.
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