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QE on the cards for the RBA?

Published March 17, 2020

Author Rowan Murphy

Liquidity in financial markets has evaporated as COVID-19 spreads, prompting Central Banks to conduct operations to help ease markets concerns (the Fed pulled the trigger for their maximum amount – USD500bn – again overnight).

The EU is planning to temporarily lift state aid rules so that liquidity can be pumped into the various economies. The S&P500 hit its “circuit-breakers” several times overnight and closed 12% lower, marking that index’s biggest loss since 1987. The DAX fell  5.3% and the FTSE 100 was down 4% among the sea of red which was equities yesterday. Yields for US 10-year treasuries fell 21bps to 75bps, bund yields rose (to -46.9pts), Oil (WTI) fell 9.6% and even Gold fell. SPI Futures are suggesting the ASX200 will open 4.1% lower this morning which is on the heels of yesterday’s 9.7% move lower, the worst intraday performance in its history.

Released last night the US the Empire State manufacturing index fell a record 34.4 pts to -21.5 pts in March, the lowest level since 2009. Given the little time that the period measured reflected the growing COVID-19 indicates there is potentially a lot more to come.

Measures to control the spread of COVID-19 have intensified with North Eastern parts of the US going into partial lockdown. The EU has proposed a 30-day ban on non-essential travel, which if agreed to will effectively be closing its external borders. Germany and Switzerland closed bars and restaurants.

The UK has advised against all unnecessary social contact and to work from home and not go to bars and restaurants. Austria, Hungary, the Czech Republic, Poland, Lithuania, Germany and Switzerland have all taken measures to tighten border controls. These controls will initially last for 10 days, but could be extended for up to two months.

AUD continues to underperform while USD and JPY have benefitted from safe-haven status.The RBA released a statement yesterday saying it “stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market”.

Another rate cut and formal QE seem essentially unavoidable given the expected (and extended) impact to the Australian economy caused by the proposed measures to manage the spread of COVID-19. If these measures are taken by the RBA, it should place more pressure on the already anaemic AUD.



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