Starting the week, the Australian central bank, the RBA announced that it has slashed its interest rate from 0.75% to 0.5% in a bid to prevent any further decline from the impact of the coronavirus. The Australian dollar continues to struggle in a market that has been consumed by the fears of the coronavirus outbreak which originated in China. As a currency which heavily relies on the performance of the Chinese economy, the Aussie dollar has fared worse than most in the trading market. With investors switching to a ‘risk-off’ sentiment shortly after the outbreak, AUD has found it almost impossible to find a rallying point. The central bank’s cut came as a shock as markets had expected the Aussie rate to stay put, suggesting that the rate was already at the lowest level it could afford to be at.
With the announcement of Tuesday’s RBA interest rate decision, the Australian dollar hit rock bottom. With its interest rate now standing at 0.50%, one of the lowest out of the major currencies, the risk-sensitive currencies outlook looks to remain soft for some time. The central bank also hinted at more rate cuts in the future with the possibility of quantitative easing methods looking very likely also. In a statement from the RBA, they noted that its decision to cut rates came as an attempt to support the domestic economy as its responds to the global coronavirus outbreak. The central bank noted that the outbreak has clouded the near-term outlook for the global economy which means that the global economic growth in the first half of 2020 is expected to be lower than previously predicted.
Wednesday saw the release of the GDP growth figure for Australia in Q4 of 2019 which shocked markets with a boost to both the YoY and QoQ figure. The YoY figure rose from 1.7% to 2.2%, whilst the QoQ figure jumped from 0.4% to 0.5%, despite forecasts of a -0.1% drop. This figure was unexpected and will certainly help AUD traders find some optimism in the currency ahead. But the impact of the coronavirus will not be fully reflected until possibly March’s GDP figures, which Philip Lowe, Governor of the RBA noted will likely to be much weaker than earlier expected.
Towards the end of the week, the mood around AUD had shifted slightly after being barraged for weeks by the coronavirus. the Aussie dollar saw a tailwind off the back of the impressive GDP figure, and with the US Fed announcing its 50bps rate cut on Wednesday, AUD looked to capitalise on the US move as it took pressure off the RBA’s decision to cut their rates from 0.75% to 0.50%. The market noted that thanks to Australia’s budget and current account surpluses, the currency is likely to weather the storm whipped up in the global economy by the coronavirus. Thursday’s import and export figures for January showed -3% for both figures from 2% and 1% respectively, but trade balance showed a better-than-expected 5210 million, up from expectations of 4800 million for January. AUD investors will now await Friday’s retail sales figures for a final boost to the currency at the week’s end.
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