By Daniel Gaffney
As Australia, New Zealand and South Korea gradually lift lockdown measures and re-open their economies, their currencies have jumped significantly.
The Pacific nations are among a small group of countries that have managed to buck the trend and put a lid on the coronavirus outbreak – at least for now. Their success has boosted investor confidence and it’s showing in the strength of their currencies. In contrast, many of their neighbours are still struggling to control the pandemic. The little news that has come out of China – the largest economy in the region – has been bet with mass scepticism.
“New Zealand and Australia have been very effective in controlling COVID-19 and are ready to restart their economies,” Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, wrote in a note last Friday.
“In Australia, AUD (the Australian dollar) soared despite weaker PMIs, after Prime Minister Morrison said they are headed for a COVID safe economy,” she said. Purchasing Managers’ Index (PMI) is an economic indicator of how well the manufacturing sector is performing.
“The fact that these countries are ready to restart activity after effectively controlling COVID-19 (and not before) means that they are leaps and bounds ahead of the US in terms of economic recovery, which should be wildly positive for their currencies,” Lien said.
Has Asia Controlled the Virus more Effectively than the West?
There is a notion that Asia-Pacific countries have been more successful in controlling the virus than Europe and the US.
The U.S. has the most number of reported cases worldwide, with at least 988,000 infections and 56,200 deaths, according to Johns Hopkins University data as of Tuesday morning. While Donald Trump’s press briefings have been a circus-like affair. Last week, the President stated that the virus could be killed by ingesting disinfectant, and standing in a strong ultra-violet light.
Spain, Italy, France and Germany are the other countries most badly-hit by the pandemic. While Britain’s death toll has exceeded 22,000, with a third of coronavirus related deaths coming from care homes. Worldwide, there are more than 3 million confirmed cases, and at least 211,159 deaths, according to the data.
By comparison, at the time of writing, Australia had confirmed that 84 people had died from health complications related to coronavirus, while 19 lives had been lost in New Zealand.
Australia and New Zealand have many of their major export destinations emerging from lockdown sooner than the U.S. and much of Europe. Australia acted swiftly when the outbreak surfaced in the country, closing off its borders and imposing movement restrictions. This week, its daily new cases came down to single digits, and Australia said it will start easing some restrictions.
The Australian dollar was one of the region’s worst-performing currencies last year, on the back of concerns over its slowing economy and that of China’s – its largest trading partner.
At the start of 2020, it was as high as $0.70 against the U.S. dollar — but plunged to a low of $0.5798 in mid-March as virus concerns took hold. Since then, it has surged 11.4% and last changed hands at $0.6460.
New Zealand lowered its alert level on Monday, allowing gatherings of up to 10 people and permitting businesses to reopen, though they cannot physically interact with customers. The country had previously raised its alert level to the highest alert level, which meant no gatherings were allowed and all non-essential businesses to close.
At around mid-March, New Zealand’s currency was at a low of $0.5666. It has since gained about 6.4% to above the $0.60 level.
A Miracle Recovery?
From initially being Asia’s worst-hit country outside China, South Korea is now hailed as a role model for successfully containing the outbreak, after it instituted widespread testing and intensive contact tracing.
It has since eased restrictions, with the situation in the country a stark contrast to the rest of the world: People have started going out to malls and restaurants again, and are returning to work.
South Korea’s story represents a glimmer of hope in the region, and the case study is encouraging for the West, where the pandemic is at its peak. The Korean won weakened to levels above 1,270 in early March, but strengthened almost 5% by around mid-April as cases lessened.