Australians yet to book a holiday to enjoy the northern hemisphere summer will be weighing up whether to put their plans on hold as the coronavirus goes global and the Australian dollar slumps to its lowest levels in years.
While containment measures in mainland China appear to be working, the number of cases outside the country – particularly in northern Italy, South Korea and Iran – continue to climb.
Those planning a holiday in the northern hemisphere in the middle of this year face a dilemma, with the Australia dollar weak against foreign currencies and the extent of coronavirus not known. Credit:iStock
The Department of Foreign Affairs and Trade (DFAT) on its Smartraveller website has advice for 10 small towns in the northern Italian regions of Lombardy and Veneto, which have been isolated by Italian authorities, to "reconsider your need to travel".
For the rest of Italy, the advice is to "exercise a high degree of caution".
DFAT's lowest, or safest, level of "exercise normal safety precautions" applies to most of the rest of western Europe. There is also advice to "exercise a high degree of caution" for France and Belgium, but that has been in place for some time because of the risk of terrorist attacks in those countries.
While mainland China's rating is listed as "do not travel", Hong Kong, Japan and South Korea are "exercise a high degree of caution". Iran is also "do not travel".
DFAT advises intending travellers to affected areas to talk to a doctor before making any trip with young children, babies or an elderly person, if you are pregnant; have a weak immune system or have a chronic medical condition.
While the outbreak of the virus is a major concern, so, too, is the fact that the value of the Australian dollar is falling against most other major currencies.
The dollar was buying about US70 cents at the start of the year but it has since slumped to US66 cents – its lowest level since 2009. Part of the reason is the strength of the US dollar, as its economy is booming.
However, a slower economy in China as a result of the virus will impact demand for Australian commodities, with our economy expected to take a major hit as a result. The combined effects of the travel ban from mainland China on tourism and education will add to the malaise.
The Reserve Bank of Australia this week cut its cash interest rate by 25 basis points to a record low 0.5 per cent to support the economy.
"The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than expected," the bank said in a statement.
"The uncertainty it is creating is also likely to affect domestic spending. As a result, gross domestic product growth in the March quarter is likely to be noticeably weaker than earlier expected. Given the evolving situation, it is difficult to predict how large and long-lasting the effect will be."
Lower interest rates causes more international investors switch their money from Australian dollar to foreign dollar-dominated investments, putting additional downward pressure on our currency.
The Australian dollar edged slightly higher after RBA's rate announcement, as some economists had been expecting a cut of 0.5 percentage points.
Shane Oliver, chief economist at AMP Capital, says there little reason for thinking there will be a turnaround in our dollar any time soon, given the exposure of our economy to China.
About the only positives to come from the spread of the virus is there could be a boost in tourism to the holiday spots affected by the recent bushfires, as more Australians take their holidays at home.
And there are also bargains on domestic flights as airlines feel the heat from of a lack of overseas tourists. Packages to international destinations are expected to be cheaper, too.
A Flight Centre spokesperson said that it has advertised return flights to Los Angeles from Australia's east coast for as little as $700, and to London return from Brisbane for about $1000.
"There has been some eye-catching deals to countries that have not been greatly affected by the virus and I think that will continue," the spokesperson said.
However, those thinking that they can book now and that their travel insurance will cover them for the cost of any later cancellation better think again.
Mitchell Watson, group manager of research and ratings at comparison site Canstar, says coronavirus is being treated as a "known event" by insurers and, as such, their policies exclude cancellation claims due to the virus. And, as an infectious disease, policies may not cover any overseas medical expenses that arise due to the virus.
Mr Watson said it is important to speak to individual insurers if you are unsure about what is covered.
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