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Coronavirus drives fears | AUD lost over 4% already in 2020, now at lowest level in 4 months

Published February 3, 2020

Author: Steve Oram

Pressure remains on the Aussie dollar as risk-off sentiment takes hold in global markets. The risk aversion is being driven first and foremost by the uncertainty surrounding the spread of the coronavirus. Our Dollar finds itself starting the week below 0.6700 – its lowest level in 4 months!

The primary driver of the AUD weakness is the classic ‘flight to safety’. In times of uncertainty, commodity driven currencies are sold off heavily in favour of long-term safe-haven currencies like the US Dollar, Japanese Yen and Swiss Franc. This acts a bit like an insurance policy – and in this case is insuring against the threat of the coronavirus having a sustained long-term impact on global economic growth. This could also means that the Aussie is likely to rebound rapidly if (and when) the coronavirus is brought under control.

Of concern today is what happens to Chinese stocks when they reopen following New Year celebrations. The People’s Bank of China has pledged “to provide abundant liquidity in a timely manner to maintain reasonable and sufficient liquidity in the banking system”. So clearly they are concerned about the local Markets reaction when it opens.

In Other News – Brexit

Britain has finally left the European Union, and the Union Jack has been lowered in Brussels parliament. A transition period gives negotiators until the end of 2020 to come up with a new trade deal, and there is of course the potential for this negotiation period to be extended. For now – the practical impact of Britain leaving the EU is notably subdued.

In Other News – Trump

President Trump looks like he has dodged another bullet, as the U.S. Senate have rejected witnesses in the impeachment trial. It is now almost certain that he will be acquitted this week. The entire process has attracted only minor interest from markets, and already attention is turning to who will become the democratic candidate for the 2020 election.

The Week Ahead

This week brings events that will inevitably take a back seat to developments with the coronavirus, but are still key events for financial markets.

  • Tuesday – RBA Cash Rate Decision.Tomorrow afternoon at 4:30 PM, the RBA will announce their hotly anticipated decision. Markets are pricing in a 34% chance of a rate cut, down from close to 50% last week. There is enough uncertainty ahead of this decision to create volatility for the antipodean currency pairs. The decision is followed later in the week by two speeches from RBA Governor Lowe.
  • Wednesday – NZ Unemployment Rate.On Wednesday, Statistics New Zealand will release the results from their latest Household Labour Force Survey (HLFS). Markets are anticipating another strong number, with the Unemployment Rate expected at 4.2%.
  • Friday/Saturday – U.S. Non-farm Payrolls. Early on Saturday morning brings the headline grabbing U.S. Labour Report data. Expectations are that the U.S. added 160k new jobs, maintaining an Unemployment Rate of 3.5%, with Average Earnings climbing at a rate of 3.0%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adam Nikitins and Stewart McCallum were appointed Joint and Several Voluntary Administrators of EncoreFX (Australia) Pty Ltd on 30 March 2020.

Rees Logan, Adam Nikitins and Stewart McCallum were appointed Joint and Several Voluntary Administrators of EncoreFX (NZ) Limited on 30 March 2020.

Any queries regarding the Administrations should be directed to encorefx@au.ey.com.