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Trans-Tasman bubble a dream?

There have been talks for a Trans-Tasman bubble since the Coronavirus lockdowns in March. However, different approaches from New Zealand and Australia have made this reality more a far fetched dream.

Trans-Tasman bubble would greatly help both economies

Although both countries would benefit from the trans-Tasman bubble, New Zealand would arguably benefit greater due to 5.8% of GDP being attributable to Tourism. Over 180,000 individuals are employed due to tourism and make up about 7.5% of the workforce in New Zealand.

However, as much as a trans-Tasman bubble is encouraged, the difference in approaches has made it challenging to implement. With New Zealand digging their heels and imposing one of the strictest lockdowns in the world, while Australia gave their citizens relative freedom, only imposing social distancing guidelines. The contrasting methods have become evident – with Australia still making records in daily Coronavirus cases, while New Zealand consistently records single-digit case numbers. Victoria, Australia, reported 428 new Coronavirus cases on Friday, making it the state's largest daily increase since the pandemic.

This is on the back of the Prime Ministers' Scott Morison and Jacinda ADern opening up travel between the two countries. Scott Morison stated that "she [Jacinda Adern] raised the very issue [the bubble] with me, and we're progressing those discussions." However, he also stated that it is "going to be a little be moderated for what's happening in Victoria," insinuating a possible exclusion for citizens that live in Victoria. Melbourne, a major city in Victoria, recently hit 5000 Coronavirus cases as the city re-enters a second lockdown.

Trans-Tasman may move the needle in the markets

The AUD/NZD depreciated to parity in the middle of March as risk currencies dived – with the NZD showing some strength due to New Zealand's efficient suppression of the Coronavirus. However, the Australia dollar has since rebounded, trading at the 1.067 level. There may be an argument for the Australian dollar is slightly overvalued compared to the New Zealand dollar as New Zealand's economy has been restarting without any relative setbacks. However, as demand for commodities such as oil and iron rises across the world of which Australia is a major exporter, demand for the Australian dollar may increase, strengthening relative to the NZD.

AUS200 in Blue, NZX 50 in Red

However, the significant indices for Australia and New Zealand may show outperformance, rewarding New Zealand in their Coronavirus suppression. Since their March lows, the NZX 50 has outperformed the Australian 200 Index by 4%. If New Zealand continues to outperform with regards to the Coronavirus relative to Australia, we may see a good opportunity to shorten the ASX and go long the NZX.

If both countries took the same approach, I believe there would have been a trans-Tasman bubble sooner. Australian Tourism Industry Council Executive Director Simon Westway stated that "Australia needs to get back on its feet before Trans-Tasman bubble," and that Australia needs to open its domestic borders between states before opening up to New Zealand. Jacinda Adern took a stab at Australia's Coronavirus response, stating on video that "If Australia wants a whole country trans-Tasman bubble, we'll be waiting."

Melbourne, Australia re-enters a six-week lock down

Melbourne, a major city in Victoria, Australia, has forced residents to re enter a six-week lockdown. This is after the major city reported 191 new cases of the novel Coronavirus, with double-digit case growth in the past couple of days.

Melbourne's cases have reached "unacceptable" levels, prompting lockdown

Daniel Andrews, Premier for Victoria, stated that the new restrictions were due to the “unacceptably” high number of cases. Furthermore, he also stated that “it is simply impossible, with case rates at these levels to have enough contract tracing staff to have enough physical resources to suppress and contain the virus without taking significant steps” Furthermore, Chief Health Officer Brett Sutton stated that there was a “unanimous view” on the increase in restrictions in Melbourne. Victoria has also imposed to close off the NSW-Victoria border, with over 1,000 soldiers and police officers making their way to reinforce the border.

It is stated that a partial reason to why there has been a resurgence of cases in the state of Victoria and Melbourne in particular, is due to their opting of contracting security firms to regulate the quarantine. In comparison, this is opposed to enlisting the police force like many states in Australia and countries around the world. There have allegedly been security lapses with security guards sleeping with guests hotel guests who were staying due to a mandatory quarantine after arrival into the country.

Melbourne's second lockdown may be detrimental to Australia's recovery

Melbourne and its second lockdown comes back to bite critics who saw New Zealand’s lockdown overly strict in comparison to Australia, touting that Australia has been achieving similar results with fewer restrictions on their citizens. ACT party leader, David Seymour in April that Australians are being “treated like adults” by their Government and are achieving “better results.” Furthermore, he stated that “Australia appears to have its cake and eating it too, as it achieves better COVID-19 health outcomes than New Zealand with fewer restrictions on economic activity.”

Coronavirus Cases in Australia and New Zealand. Australia in red on the right axis, New Zealand in blue on the left axis.

However, as time has shown, New Zealand’s stricter approach has paid better dividends even with the higher initial economic cost. IBISWorld has stated that “the overall recovery of the Australian economy is expected to be significantly hindered by the second lockdown.” The state of Victoria contributed 24% of Australia’s GDP in 2019. The ASX and AUD are down 0.89% and 0.14% on the lockdown news, respectively.

ASX and AUD down in the past two days

We can see that the Coronavirus continues to grapple the world economically and politically. Brazilian President Jair Bolsonaro saw the Coronavirus as the “little flu” and frowned upon social distancing measures, stating, “we’ll all die one day.” He has now tested positive for the Coronavirus. He would be the second head of Government to test positive for the novel Coronavirus, with Prime Minister Boris Johnson having contracted Coronavirus earlier this year. Furthermore, with no formal Coronavirus plan, President Donald Trump administration grappled with re-opening the US economy amongst an election in September. Jacdina Adern has faced major criticism over lapses in security regarding mandatory quarantine and increases in taxes amongst significant government borrowings.

A vaccine for the Coronavirus would be required to provide stability in the economy, as countries with relatively successful Coronavirus plans are still struggling with the effects and aftermath of the virus.