Aussie Powers Higher Amid Rising Risk Appetite

The two main forces behind the rebound have been the Reserve Bank of Australia (RBA) decision to leave rates on hold and waning fears over the Wuhan coronavirus.

At its first meeting of the year on Tuesday, the RBA kept interest rates unchanged at the record low of 0.75%. Despite the devastating Australian bushfires and the Wuhan coronavirus threat, the RBA kept its forecast for economic growth in 2020 at 2.75%.

In his statement, Governor Philip Lowe left the door open to rate cuts in 2020: “The Board will continue to monitor developments carefully, including in the labor market. It remains prepared to ease monetary policy further if needed to support sustainable growth in the economy.”

Meanwhile, risk-sensitive currencies such as the Australian dollar and the New Zealand dollar were lifted by news of medical progress in combating the coronavirus. Researchers at Zhejiang University reportedly found drugs to treat people afflicted with the virus. In addition, according to a report from Sky News, researchers at Imperial College London plan to begin testing a vaccine on animals as early as next week.

On Wednesday, China’s Health Commission indicated that 65 people died on Tuesday and that 3,887 more people were infected by the coronavirus. The World Health Organization (WHO) cast doubts over news of a drug breakthrough in a statement on Wednesday. WHO spokesman Tarik Jasarevic warned: “There are no known effective therapeutics against this 2019-nCoV (virus) and the WHO recommends enrolment into a randomized controlled trial to test efficacy and safety.”

Traders now turn their attention to Australia retail sales and trade balance data due for release on Thursday. In January, the Australian Bureau of Statistics reported that retail sales increased by 0.9% in November, beating expectations and marking the largest rise since November of 2017. However, analysts expect retail sales to have slipped by -0.2% in December.