Currency Update - Friday 20th March 2020
AUD
It’s been a horror 24 hours of trading for the Australian Dollar that took huge
losses yesterday against the majors prior to the RBA’s emergency rate cut to
0.25% and the announcement of QE. Now there’s a plan in place the AUD
stabilised and moved higher in a volatile reversal. It wasn’t set to last
however and in the early hours, Australian eastern time the AUD began falling
once again. We haven’t hit the lows seen yesterday yet but markets appear to be
resuming normal programming with plenty of offers for the AUD and a rapidly
rising USD. Other risk assets such as US equities also saw a rally as the
general market view lifted off the back of the raft of global economic stimulus
announced by central banks around the world. The sentiment was also helped by a
25% spike in oil prices while US 10 year yields fell 7 basis points. Here in
Australia, we have elected to shut borders to non-residents while the US is
attempting to fast track a possible vaccine. As we finish the week, we’re
encouraging all clients to consider worst-case scenarios for their businesses
to help them make sensible FX decisions.
USD
The AUD has had to endure an extraordinary 24 hours of volatility with markets
moving from just above 0.55 to a high of 0.5960 seen in the early hours this
morning. The change in sentiment provided a short-term lift to the AUD however
it wasn’t to last with more confirmed cases and a worsening situation worldwide
which encouraged another round of USD buying. This was enough to push the AUD
down to just above 0.57 at the time of writing. The US Fed also announced that
they are extending swap lines to Australia, New Zealand, Brazil, South Korea,
and other countries which made an immediate and noticeable impact on
stabilising markets. There remains a serious liquidity issue that is necessary
for these types of outrageous 8% swings in 24 hours. At this point, things are
still expected to get worse before it gets better so we should expect more
volatile swings.
EUR
The AUD traded down to a low of just above 0.50 all the
way back up to a 05543 in the past 24 hours in an incredible bout of
volatility. Markets are trading AUD/EUR at 0.5389 which is a marked improvement
over where we were yesterday as markets seemingly approve of the Australian
monetary response to the issue. There was big news from the ECB which added
750bn EUR to its bond purchases in a Pandemic Emergency Purchase Program
(PEPP). There was some positive rhetoric at the end of the ECB statement that
promised to buy all the bonds that sovereigns might issue to fund programs to
contain the spread of Covid-19.
GBP
Pound Sterling joined the US and EUR with a massive swing
from a low of 0.4792 all the way back up to 0.5063. Markets have since traded
the AUD down to just above 0.50 at the time of writing and with the lack of
liquidity we can expect further swings. The BOE announced an emergency rate cut
of 15bp, bringing the rate down to 0.10% and also announced an increased
quantitative easing plan. They also left open the option of taking further
action and said that the scheduled meeting next week will still go ahead.
NZD
AUD/NZD has seen massive volatility this week and markets
are currently trading the pair at 1.0110 at the time of writing. NZ has joined
Australia is closing its borders to all non-citizens and also has announced
about bailouts for their struggling aviation industry. Time will tell whether
these measures are alone sufficient to beat the outbreak in NZ or what kind of
economic damage will be wrought.