Currency Update - Monday 16th March 2020

AUD

Markets open this morning to a US Federal Reserve that has
enacted an emergency rate cut from 1.25% to 0% in addition to $700b USD worth
of quantitative easing. While not entirely unexpected with markets pricing much
of the move in it is acting to immediately unwind the strength of the USD. So
far, the AUD is finding bidders across the majors however nothing can be
counted on in what is an extremely volatile market. Ports and cities all over
the world are in varying levels of quarantine and strict self-isolation with an
expectation that this will continue for the foreseeable future. With thin
liquidity and crushing swings in equities and other markets some governments
are electing to temporarily ban some forms short selling to help reduce
volatility. There was some more upbeat news with media reports that a Canadian
company had found a successful coronavirus vaccine. So far the company is being
selected as a candidate for government trials on humans as early as June.

USD

AUD/USD is currently trading in a wide range coming off of lows
of 0.6124 as markets absorb the US Fed cut down to 0%. The emergency decision
was designed to prevent the kind of credit crunch and disruption to financial
markets that last occurred during the GFC. In addition to the rate cuts the US
Fed has announced it will be purchasing another $700b worth of treasury bonds
and mortgage backed securities. Furthermore, deals were struck with other
central banks around the world – the Bank of Canada, the Bank of Japan, the
Bank of England, the Swiss National Bank and the ECB – to lower their rates on
currency swaps to keep the financial markets functioning normally. This
coordinated move will help reduce short term borrowing costs and keep credit
flowing in a time when businesses will be looking for every form of financial
assistance available. In other news Trump declared the pandemic a national
emergency and announced a series of measures to help fight the virus in
addition to more federal funding. He also announced that the US would buy large
quantities of oil for the strategic reserve, this helping crude oil bounce from
near flat to gains of more than 5%. With the cost of the Covid-19 outbreak so
far to the global economy in the trillions we can expect more governments
around the world to make big decisions to keep the their economic engines
turning over.

EUR

The AUD has continued to slide since Friday morning against the
Euro with markets trading the pair just below 0.56 at time of writing. We have
seen a small lift this morning after the emergency Fed cut but with such
volatile conditions it’s difficult to gauge where we will end up across the
course of the day. The news is sadly grim across Europe which is keeping the
EUR heavily sold as many countries across Europe reported spikes in confirmed
cases and fatalities and there were continued examples of borders being closed
and events being cancelled. German Financial Minister Scholz said Germany was
putting all its “weapons on the table” to fight the coronavirus epidemic and
use all means necessary to support the German economy in announcing timely and
targeted measures. EU President von der Leyen also on the wires to say that the
economic shock must not cause permanent damage and EU nations must take all necessary
steps. She announced a 37 billion Euro stimulus package and said the EU was
ready to provide additional support if needed.

GBP

Pound Sterling has seen extreme volatility since Friday as we
moved up from a low of 0.4953 on Saturday to a high of just below 0.51 this
morning. The US Fed cut saw a massive rally in AUD/GBP however that has quickly
come off and markets are now trading just above 0.50. Despite some worrying
reports that the UK government proposed a “herd immunity” strategy, they have
since backed off such ideas and are now seemingly joining the international
community in their attempts to contain the virus.

NZD

The RBNZ elected to slash rates by 75 basis points in an
emergency meeting yesterday. Subdued reaction from currency markets and the Kiwi
continued to make gains on the AUD down this morning before the US Fed rate cut
that saw AUD test just below 1.032. Volatility is high however and the AUD was
quickly traded back down to 1.02 at time of writing.