Amid worries over China’s economy, some currencies — particularly those of commodity-producing countries — will be most vulnerable to its slowdown.
Experts say that two currencies stand out as being the most exposed to China: the Australian dollar and the New Zealand dollar.
China is the biggest trading partner of both countries, with 24.9 percent of New Zealand’s exports and about a third of Australian exports going to the Asian giant.
Flattening demand from China — the world’s top consumer of iron ore — is also set to weigh on Australia, the world’s largest iron ore exporter.
The experts expect the largest falls to occur in the Australian and New Zealand dollars. This is due to their exposure to China’s economy, which we forecast to continue to slow, and in the case of the Australian dollar to its reliance on exports of iron ore and coal, which we think will be among the worst performing commodities this year.
When commodity prices decline, the amount of money paid for that country’s exports also goes down — leading to a depreciation of its currency, and vice versa.
Growth in the world’s second-largest economy cooled to 6.6 percent last year— the slowest in 28 years — from 6.8 percent in 2017.
Currencies at risk
The Canadian dollar is another commodity-linked currency that could also come under pressure.
In a hypothetical scenario where oil hits the floor on fears of reduced demand from China, then other commodity-linked currencies that are at risk to feeling the brunt of the pressure include the Canadian Dollar and even the Russian Ruble. Asian currencies that could be susceptible to Chinese economic concerns would include the Malaysian ringgit, Indonesian rupiah and Singapore dollar.
Australian dollar is most at risk among commodity-linked currencies, as it follows the “general trend of global risk appetite” more than its domestic economy.
Only a trade deal between the U.S. and China — who have been embroiled in a tariff battle since 2018 — could save those at-risk currencies, experts said.
These currencies will remain vulnerable to sudden shifts in direction for as long as the political landscape in the global context remains subject to sudden changes.
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