Overseas holidays and imported goods are set to become more expensive with the Australian dollar falling to a three-year low against the American greenback.
The Australian dollar almost fell below 70 U.S. cents on Wednesday, following panic selling on global financial markets.
Currency speculators dumped the Australian unit on Wednesday after a weaker than expected set of manufacturing numbers came out of China, Australia's biggest trading partner.
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| Overseas holidays and imported goods are set to become more expensive with the Australian dollar (pictured) falling to a three-year low against the American greenback |
It plummeted from 70.44 U.S. cents shortly after midday to 70.02 U.S. cents by 1.39pm.
This was the Australia dollar's weakest level since February 2016, when it traded as low as 68.28 cents against the U.S. currency.
Commsec market analyst James Tao blamed weaker-than-expected Chinese manufacturing data for the sell-off in the Australian dollar.
'China of course being a major trading partner, it's a big part of our economy,' he said.
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| Currency speculators dumped the Australian unit after weaker than expected manufacturing numbers came out of China (military display pictured), Australia's biggest trading partner |
An increase in American interest rates, also known as the federal funds rate, would also strengthen the greenback, as investors would get a better return investing in the United States instead of Australia.
The U.S. Federal Reserve raised rates in December to a range of 2.25 to 2.5 per cent, its ninth such move since late 2015.
Conversely, in Australia, the Reserve Bank has left interest rates at a record low of 1.5 per cent since August 2016.
With the Sydney and Melbourne housing markets continuing to fall, Australia's central bank would be reluctant to raise interest rates in the first half of 2019, which would put more pressure on the Australian dollar.
A weaker Australian dollar makes imported goods and overseas holidays more expensive, especially when global prices are pegged to the U.S. dollar.
