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FX Update: Financial markets infected with a serious case of Coronavirus

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Markets felt better heading into the second half of the week as market punters welcomed increased signs of countries coordinated efforts in the fight against Covid-19 and Super Tuesday achievements by Vice President Joe Biden. Sentiment improved as Biden won a majority of state primaries in the race to become the Democratic Presidential nominee. A more centrist Democrat candidate has provided comfort to investors with equity markets climbing over 4% reversing most of the early week losses. 

The Federal Reserve cut rates 50 points to 1.25% Wednesday in an emergency policy meeting but left the door open for further easing. We see further cuts needed by the Fed with chances of a 25 point cut by April and another 25 points by June. Fundamentals of the US economy remain strong but with virus fears and concerns this will weigh on economic activity in the US and around the world for several months. FOMC’s Mester also noted that coming into the current coronavirus situation this year the government was “on a good footing” with solid growth and inflation on track towards 2.0% – but now this outlook is somewhat uncertain.    

Australia’s Central Bank cut rates by 25 basis points to 0.50% as widely expected Tuesday. With references made to Bushfires, phase one trade deal and the impact of coronavirus to the economy high on the agenda. The RBA are prepared to cut rates further if necessary, as the economy responds to the global coronavirus outbreak. The government saying the coronavirus has “clouded the near-term outlook.” Other Australian data releases this week have been poor with Building Approvals – seasonally adjusted down 15.3% for January 2020. The AUD against the US Dollar rose off recent lows to 0.6300 a clear sign the currency has been well oversold recently based on coronavirus headlines.

The Bank of Canada also eased monetary policy Thursday lowering their cash rate half a percent to 1.25% from 1.75% the BoC signalling they would ease again in direct response to coronavirus worries if the economic toll on the economy worsens. The BoC also went on to say if the coronavirus outbreak subsides they would look at raising rates again later in the year. The coronavirus has led to a sharp decline in business activity causing the Loonie (CAD) to depreciate over 1.2% against the US Dollar and over 2.0% versus the Japanese Yen.

Attention is with tomorrow’s US Non-Farm Payroll release and February Unemployment Rate which is expected to fall in line with last month’s 3.6% 

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