Impact of COVID-19 on the Value of AUD

INTERNATIONAL FINANCE
ASSIGNMENT 1
IMPACT OF COVID-19 ON THE VALUE OF AUD
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Name – Tricia
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Name – Kalik
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INDEX
ABSTRACT
The Covid-19 pandemic had a huge impact on individuals and countries around the globe.
There was a lot of uncertainty about the effects of virus worldwide and till today, there is no
end date of the virus. The virus bought with it a worldwide lockdown where most of the
countries closed their borders and did not allow anyone to go in and out. This had a major
impact on the economies worldwide and impacted the exchange rate of different countries.
Exchange rates depends upon several factors such as the exchange rate, inflation rate,
economic and political standing, fiscal and monitary policies etc. Events such as wars,
political unrest, pandemic etc can have a major impact on the exchange rate market and can
make it volatile. Covid-19 bought a few challenges for the entire globe. This essay aims to
understand the impact of covid-19 on the value of AUD and trying to estimate whether the
AUD will appreciate or depreciate in the next 2 years.
INTRODUCTION
Foreign Exchange Market is a global marketplace for buying and selling different currencies
around the world. Exchange rates of any currency are very volatile and depends upon a
number of factors such as the political and economic situation of the country, its inflation and
interest rate, any natural or man-made disasters etc. They are very sensitive to enormous
shocks such as oil prices, political decisions, war and natural disasters. A pandemic as big as
covid-19 surely had a great impact on the foreign exchange market’s volatility.
Covid-19 pandemic spread like a wildfire across the world and had a long-lasting impact on
life of each individual around the globe. It resulted in lots of businesses around the world to
shut down, countries imposing lockdowns and masks being made mandatory in many parts of
the world. Due to lockdowns, individuals were encouraged to stay at home and to compensate
for that, the governments around the world had to spend a huge amount of money on stimulus
checks, unemployment benefits and injecting capital in the economy. Lockdowns also meant
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that there was restricted international trade and travel which impacted economies of countries
highly dependent on imported goods. Also, since the foreign exchange market also works on
the principle of supply and demand, the above stated factors resulted in volatility in the forex
market.
Overall, COVID has managed to affect several of the main sources of exchange rate
fluctuation, such as “interest rates, inflation rates, government debt, political stability, export
or import activities, recession and speculation” (Corporate Finance Institution, nd). The
currency of each country was impacted differently due to their different political and
economic policies to deal with covid-19. Some countries tried to downplay the virus and did
not close their borders and they were faced with a surging number of cases which impacted
their economies. Some countries tried to take drastic steps by closing their borders and
imposing strict lockdowns which helped in controlling the spread of the virus. Australia had a
serious outlook towards the virus and closed its borders and imposed strict lockdown in covid
infected areas which helped the country to better manage the virus. And even though the
Australian dollar lost value initially due to the fear and uncertainty of the virus, it was able to
stay stable because of different factors which would be further discussed in the essay.
ANALYSIS
Covid-19 has forced the world to adopt to strict and harsh measures to control the spread of
the virus, this has led to economic uncertainty. Macroeconomic uncertainty increases the
volatility in the Forex and other markets (Arif, Saeed et al. 2021, p.1). The most significant
factors of exchange rate, supply and demand, drive the foreign exchange market, just like
they do in every other market. These changes in several nations have an effect on the foreign
global market as well. Several of the primary drivers of exchange rate volatility, including
interest rates, inflation, government debt, political stability, export or import activity,
recession, and speculation, have been impacted by COVID. Therefore, it is crucial to
establish the true significance of each element as well as how much of the stated volatility
was actually caused by the pandemic. Each nation had different effects during this period,
and their responses were determined by their political and economic actions. (Salim 2022).
Forecasts made prior to the coronavirus indicated that real gross domestic product (GDP)
growth rates will rise by 2.9 percent in 2020. However, as per IBIS World, real output
decreased by 3.6% as a result of COVID-19. More than 130 million individuals worldwide
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have been added to the "poor" class as a result of job losses and increased unemployment,
which has also caused major changes in people's income categories.
THE ECONOMIC AND FINANCIAL EVENTS ASSOCIATED WITH THE
OCCURRENCE OF THE COVID-19 PANDEMIC
 SUPPLY CHAIN INDUSTRY
The Australian Bureau of Statistics recorded a 48% increase in operational limitations in
Australia. In most areas of manufacturing and supply, Covid-19 has disrupted activity and
had the expected impact on the supply chain. Data from August 2021 showed that the hardest
hit industries were the shipping, postal, and warehousing sectors. The supply chain was
significantly strained as a result. There has been reduced demand on supply chains as a result
of the recession in the global economy's impact on industry and retail, which has prevented
many from restarting with high levels of efficiency. In the end, however, the service industry
and supply chains will employ technological solutions like AI, digital platforms, advanced
analytics, and big data to create new ways of working. (3)
In addition to many other things, operators involved with supply chain have been able to
assist clients by finding new manufacturers, creating more effective distribution paths, and
adopting last-mile logistics to send goods to their final destination as quickly as possible. As
a result, it is expected that industry revenue would grow at an annualised rate of 3.4% to
$10.2 billion. The industry profit, calculated as earnings before interest and taxes, grew from
6.3% in 2017 to 9.5% in 2022, including a rise of 4.4% in 2022 alone, as industry operators
were able to raise their service costs to pre-pandemic levels. (3). However, things are looking
up in this industry as we have not only mended the pandemic effects but have discovered new
ways of delivering products and services.
 GOLD ORE MINING INDUSTRY
As per IBIS World, Australia and the UK and India each have free trade agreements (FTAs)
in place. The free trade agreement between Australia and the UK was struck in late 2021, and
both parliaments are expected to ratify it before it takes effect in early 2023. The Australia-
India Economic Cooperation and Trade Agreement was signed by Indian and Australian
authorities in April 2022. India and the UK both serve as important export markets for
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