The Australian dollar has plunged to a near five-year low, its weakest level since the onset of the COVID-19 pandemic. During Jan. 2's trading session, the currency briefly hit US61.84 cents before recovering slightly to US61.89 cents.
The last time the Aussie dollar fell this low was April 7, 2020, when it reached US61.85 cents.
In addition to the decline against the US dollar, the Aussie has also weakened against the British pound, buying just 0.49 pence.
A falling dollar spells bad news for travellers and those purchasing imported goods, as it increases the cost of foreign products.
However, it provides a boost for Australian exporters, making Australian goods and services more affordable for international buyers.
AMP Chief Economist Shane Oliver noted that if the trend continues, it could influence the Reserve Bank of Australia’s upcoming rate decisions.
"Imports account for 10 to 15 per cent of the consumer price index, so the Aussie’s fall can significantly affect inflation," he said. "A 10 per cent drop in the Aussie dollar can add 0.1 to 0.15 per cent to inflation. If it continues to fall, say by 20 per cent in 2024, it could influence the RBA’s stance."
Market experts attribute the Aussie dollar's weakness to global factors, particularly the economic challenges in China and the US.
Meanwhile, IG Market Analyst Tony Sycamore cited US political developments as another key factor.
He attributed part of the dollar's strength to former US President Donald Trump’s fiscal policies, which resulted in a stronger US dollar.
Looking ahead, Sycamore suggested that the fate of the AUD/USD in 2025 will hinge on the policies implemented after Trump's January 20 inauguration.