Author : Rowan Murphy
Stocks have bounced and volatility has eased, as markets price-in a coordinated policy response from global central bankers to manage fears about the financial impacts for COVID-19. In emergency moves, a spate of central bankers and finance ministers have flagged their willingness to support economies with rate cuts and other stimulus measures. Our own RBA is set to meet today to announce a cut.
The warning lights are still flashing with COVID-19 remaining uncontained in South Korea, Italy and Iran and the US announcing its 5th death because of the disease overnight. On the data front the US ISM Manufacturing figures slightly undershot expectations, with the index falling to post-GFC lows, signalling a big slowdown in global trade last month.
It will be all eyes on the RBA this afternoon as a rate cut is considered a certainty according to market pricing with a marginal chance existing that the RBA reduces rates by 50 basis point and to its “effective lower bound” of 0.25%. If not today, then it’s only a matter of time that the cash rate is cut to that level, crucially opening the door to an RBA QE program in the not too distant future according to market participants.
Today’s rate cut along with the lingering fears about COVID-19 is keeping the local unit supressed at the moment. A slightly lower volatility environment and Central Banker and Minister talk overnight did support a small rally in equities, a ‘dead cat bounce’ perhaps? Although the Aussie has opened off yesterday’s close this morning and is ‘technically oversold’, the AUD/USD remains close to its decade long lows and well entrenched within a downtrend.
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