Currency Update - Thursday 12th March 2020

AUD

The coronavirus has officially been declared a pandemic by the
World Health Organisation which prompted markets to further trim risk,
worsening conditions for the AUD. Oil and the S&P500 both took hits,
falling 4.6% and 4% respectively while global yields were also lower with the
US 2 year falling 7 basis points. The pandemic for now is focused on Italy and
Iran though the WHO warned that other countries would soon be in similar
positions. Italy announced another significant spike in confirmed cases and fatalities
as numerous airlines announced the suspension of services in and out of Italy
while some US cities announced measures to limit large gatherings. Trump was
rumoured to be addressing the US from the Oval Office around noon Sydney time
with some suggestions he declare the outbreak a disaster to free up federal
funds to address it. On the data front Chinese new loans came in slightly lower
at 906B vs 1100B expected however there wasn’t much notice from currency
markets. Today ScoMo is expected to release much awaited details on the
government's spending plan designed to avoid a recession. As government's
abandon frugality around the world, pressure is on the govt to spend big which
would also give the AUD a bit of support.

USD

The AUD had a forgettable 24 hours of trading against the USD
which saw the brow beaten currency drift lower to trade just below 0.65. There
was little of the volatility that we’ve seen recently with markets trading the
pair in a tight range from 0.6540 down to 0.6483. The USD has firmed since news
broke that Trump was planning his own stimulus package to respond to the
coronavirus despite the vague promises so far heard. In other data news, US CPI
rose 0.1% MoM and 2.3% YoY to beat headline expectations by 0.1% in both cases.
Core matched expectations at +0.2% MoM though again beat expectations by 0.1%
YoY, coming in at 2.4%. Ahead today we have Trump delivering what will
hopefully be further detail relating to his coronavirus response that is
helping prop up markets. We finish up the US related data this evening with
their PPI releases before all eyes turn to Europe and the ECB's monetary policy
meeting.

EUR

AUD/EUR appears to be deadlocked in an extremely tight 20 pip
trading range as neither currency appears to be doing much of anything in the
lead up to the ECB’s monetary decision. In the absence of much significant news
there’s been little for currency markets to respond to and so far, the latest
news is purely coronavirus related. German Chancellor Merkel said that the aim
is to slowdown the spread of the virus and maintain economic life though noted
that 60-70% of the German population was likely to be infected. Italian
officials also announcing they would spend up to 25 billion Euros in
coronavirus measures with French President Macron was set to address the nation
on Thursday. European equity markets fell into the close with the FTSE closing
down 1.4% while losses elsewhere were around 0.5%. The Italian MIB shrugged off
the worsening coronavirus situation to close in positive territory. Markets
will likely continue to trade flat ahead of the ECB’s decision tonight expected
to release around 11:45pm.

GBP

Pound Sterling has taken some small losses overnight as markets
absorb the Bank of England’s decision to cut rates by 0.5% from 0.75% down to
0.25%. Markets had a rate cut more or less priced in so the reaction in terms
of price action was fairly muted. Moreover, there were inflationary actions
taken at the same time with an emergency stimulus package from the BoE being
very well received. The BoE also added a range of methods to assist the
economy, from a liquidity facility for banks, augmented by an incentive to
support loans to SMEs, as well as a cut to the counter cyclical capital buffer.
In other UK data news there was some mixed results with worse than expected
results for January Industrial Protection and Construction Output data though
the trade deficit was smaller than thought. No other data to report.

NZD

After another difficult day for the AUD trading against the Kiwi
during which we briefly traded in the 1.02s, the US session saw a small
reversal as markets traded the pair back up to 1.0345 (at time of writing). No
data to report.