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FED cuts rates by 50% Aussie Dollar rallies

Published March 4, 2020

Author Steve Oram

The AUD continued its mini recovery from Monday mornings lows, gaining ground on the back of a weaker US Dollar which was sold as the US Fed cut interest rates earlier this morning.

Fed Cuts Rates

The US Federal Reserve has cut its interest rates by 50 basis-points to a target range of 1.0 – 1.25% in an emergency move to shield the economy from the impact of coronavirus.  Fed Chair Jerome Powell said the virus would weigh on the US economy for some time, and believed the central bank’s action would provide “a meaningful boost to the economy”.  This represented the first inter-meeting cut since the GFC in 2008, the greenback has been sold this morning providing a boost for currencies such as the AUD and NZD.

RBA Cuts Rates

The Australian Dollar is the best performing major currency overnight despite yesterday’s move by the RBA to cut rates in response to the coronavirus outbreak. The cash rate has been cut by 25 bps to 0.50% and is the fourth move lower in 12 months.  Australia became the first central bank outside of China to ease policy in response to the coronavirus outbreak.  It is almost certain other central banks will follow suit in the coming days and weeks.

So where to now? The concerns relating to the coronavirus have not gone away, but maybe some of the fear around economic Armageddon will subside as other Central Banks join the rate cut party and Governments introduce stimulus packages to insulate Businesses from the downturn we are experiencing.

Prime Minister Scott Morrison has said Australia is “well prepared” to face the coronavirus threat, hinting that a stimulus package was in the works as part of the government’s economic response to the epidemic.

All eyes now turn to Q4 GDP analysis with growth forecasts expected to remain flat and risks skewed toward a contraction. This is a critical benchmark for economic health as it offers some scale of performance prior to the bush fires and the coronavirus outbreak.

 

 

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.