The Effects of COVID-19 Epidemic on the AUD/CNY Currency Exchange Rate

Abstract

Contemporarily, the COVID-19 has affected various fields around the world, which has strongly affected the global economy. As a macroeconomic indicators, exchange rate might has been influenced at least in some exytents. On this basis, this article examines empirically whether the COVID-19 outbreak has an impact on the Australian foreign exchange markets in terms of SARIMA and LSTM models. The results are obtained and analyzed based on daily AUD/CNY exchange rate data with one-year time intervals from 2018 to 2021. According to the analysis of the RMSE values of the SARIMA and LSTM models, it is revealed that the Australian foreign exchange market experienced a transitory shock. Thus, some possible explanations for the shock are put forth. Assuming the Efficient Market Hypothesis holds, these included the Australian lock-down policy, a shift in confidence, and the conventional Uncovered Interest Parity theorem. Overall, these results shed light on guiding further explortaion of currency exchange rates variations during pandemic.