The RBA Cuts Rates and Supports the Expectation of a Coordinated Global Response

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Aussie Dollar was in action this morning.

While the stats were in focus, the RBA was also in action this morning. With talk of central banks stepping in to soften the blow of the coronavirus on the global economy, there was plenty of interest…

For the Aussie Dollar

On the economic data front, January building approvals and the current account were in focus in the early part of the session.

Building approvals slumped by 15.3% in January, following on from a 0.2% decline from December. Economists had forecast a 1% increase.

According to the ABS,

• A 35.5% slide in the approval of private sector dwellings excluding houses led to the 15.3% fall.
• Approvals for private sector houses increased by 0.3% in January.
• Year-on-year, total dwelling approvals fell by 11.3%.
• Approvals for private sector houses fell by 8.8%, with approvals for dwellings excl. houses falling by 15.2%.

In the 4^th quarter, the current account surplus narrowed from an A$7.9bn surplus to an A$1.0bn surplus. Economists had forecast a surplus of A$2.3bn.

The Aussie Dollar moved from $0.65388 to $0.65327 upon release of the figures that preceded the RBA monetary policy decision and rate statement.

The RBA

Later in the morning, the RBA cut interest rates from 0.75% to 0.50%. While this was not in line with economist forecasts, chatter had built on Monday of expectations of a coordinated central bank move across the major economies to soften the blow of the coronavirus.

Salient points from the RBA Statement included:

• The Board lowered the cash rate by 25 basis points to support the economy as it responds to the global coronavirus outbreak.
• Prior to the outbreak, there were signs that the slowdown in the global economy was coming to an end.
• The spread of the coronavirus has clouded the near-term outlook, which means that global growth in the 1^st half of the year will be lower than had been anticipated.
• Impact on the Australian economy is significant at present, particularly in the education and travel sectors.
• This is also likely to affect domestic spending, which means that 1^st quarter GDP numbers are likely to be noticeably weaker than forecast.
• Once the virus is contained, the Australian economy is expected to return to an improving trend.
• The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target.
• The Board will continue to monitor developments and is prepared to ease policy further to support the economy.

The Aussie Dollar moved from $0.65279 to a high $0.65657 upon release of the rate statement. At the time of writing, the Aussie Dollar was up by 0.26% to $0.6554.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.37% to ¥107.93 against the U.S Dollar, with the Kiwi Dollar up by 0.18% to $0.6272.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include prelim Eurozone inflation figures for February and January’s unemployment rate.

While the stats are of interest, sentiment towards monetary policy will continue to be the key driver.

The markets are looking for a GFC style coordinated central bank response to the impact of the coronavirus on the global economy.

For the Eurozone and the EUR, there was a double boost on Monday, with chatter of fiscal policy support from Germany also anticipated. This assuming, of course, that Germany delivers and Banks don’t sit it out for another month…

At the time of writing, the EUR was up by 0.05% at $1.1140.

For the Pound

It’s a relatively quiet day ahead on the economic calendar. February Construction PMI is due out this afternoon.

Forecasts are Sterling negative, which could sink the Pound to sub-$1.27 levels as talks between the EU and Britain proceed.

On the monetary policy front, the BoE may be off the hook this time around, which could give the Pound some much-needed near-term support.

At the time of writing, the Pound was up by 0.20% to $1.2779.

Across the Pond

It’s a quiet day ahead on the U.S economic calendar.

There are no material stats due out of the U.S to provide the Greenback with direction.

The lack of stats will leave sentiment towards monetary policy as the key driver on the day. The markets will be looking for an indication of when the FED will deliver…

On the geopolitical front, it’s also Super Tuesday, with 34% of delegates up for grabs as the Democratic leadership race heats up.

Following Biden’s South Carolina victory from the weekend and Buttigieg dropping out, there’s a lot more to play for.

Sanders, Bloomberg, and Elizabeth Warren will also be looking to give Bernie Sanders more to think about…

The Dollar Spot Index was up by 0.14% to 97.493 at the time of writing.

For the Loonie

It’s another quiet day ahead on the economic calendar, with no material stats to provide direction.

Central bank support is anticipated this week to ease market angst. We saw the Loonie bounce back to C$1.33 levels, with crude oil prices on the rise. Easing by the BoC on Wednesday, with a dovish outlook could reverse early gains, however.

Unlike the RBA, the BoC was on a more dovish footing the last time around…

The Loonie was down by 0.01% at C$1.3329 against the U.S Dollar, at the time of writing.