The RBA Stands Pat as COVID-19 Numbers Give More Support to Riskier Assets

Earlier in the Day:

It was a busy start to the day on the economic calendar on Tuesday. The Kiwi Dollar, Aussie Dollar, and Japanese Yen were in action in the early hours.

Outside of the numbers, the markets also continued to respond to the latest coronavirus numbers.

On Monday, the total number of coronavirus cases across France, Germany, Italy, and Spain rose by 17,051 to 470,607. In the U.S, the total number of cases, increased by 31,254 to 367,385. That took the total number of cases globally to 1,346,974.

Key take away from the numbers was 901 new cases in Italy, supporting the view that containment measures were taking effect. After a 25,615 spike in France on Saturday, the numbers also receded back to 5,000 levels on Sunday.

From the U.S, a plateauing in NY was positive for the markets.

For the Kiwi Dollar

The NZIER Quarterly Survey of Business Survey (QSBO) showed that a net 67% of businesses expect a deterioration in general economic conditions. In the 4^th quarter, a net 21% of businesses had expected a deterioration.

• In the 1^st quarter, a net 11% reported weaker demand in their own business, with 13% expecting weaker demand in the 2^nd
• Service sector firms reported a weakening in own trading activity. This was as a result of the enforcement of strict border controls and social distancing requirements that affected tourism and hospitality-related sectors.
• Retailers also reported a sharp decline in the week before the lockdown.
• By contrast, manufacturers and builders saw an improvement in demand in the weeks leading up to the lockdown.

The Kiwi Dollar moved from $0.59284 to $0.59320 upon release of the figures. At the time of writing, the Kiwi Dollar up by 0.83% to $0.5982.

For the Japanese Yen

Household spending fell by 0.3% in February, year-on-year, following on from a 3.9% slide in January. Economists had forecast a 3.9% decline.

According to the Statistic Bureau,

• Spending on clothing & footwear (-7.7%), fuel, light & water charges (-6.0%), transportation & telecommunication (-5.9%), education (-5.6%), and culture & recreation (-4.7%) weighed.
• There were marked increases, however, in spending on furniture & household utensils (+8.3%), medical care (+7.8%), and food (+4.2%).
• Spending on housing saw a more modest 1.7% increase.
• Month-on-month, household spending rose by 0.8% in February, following a 1.6% decline in January.

The Japanese Yen moved from ¥109.133 to ¥109.188 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.41% to ¥108.77 against the U.S Dollar.

For the Aussie Dollar

The trade surplus narrowed from a revised A$4.74bn surplus to an A$4.361bn surplus in February. Economists had forecasted an A$3.65bn surplus.

According to the ABS,

• Goods and services credits fell A$1,882m (-5%) to A$37,760m.
  • Non-rural goods exports fell by A$394m (-2%), non-monetary gold by A$332m (-23%) and rural goods by A$310m (-7%).
  • While the net exports of goods under merchanting held relatively steady, services credits slid A$846m (-10%).
• Goods and services debits fell by A$1,498m (-4%) to A$33,399m.
  • Consumption goods imports fell by A$701m (-8%), capital goods by A$415m (-7%), and intermediate goods and other merchandising by A$262m (-2%).
  • Imports of non-monetary gold fell by A$52m (-9%), with services debits falling A$68m (-1%).

The Aussie Dollar moved from $0.61068 to $0.61091 upon release of the figures that preceded the RBA’s monetary policy decision and rate statement.

The RBA

The RBA held interest rates unchanged at 0.25%, which was in line with market expectations. Salient points from the RBA Rate Statement included:

• The coronavirus remains the key area of focus.
• Once the virus is contained, the RBA expects a recovery in the global economy, supported by both fiscal and monetary policy.
• There are some signs that the markets are working more effectively after a period of historically high volatility. Support has come from central bank efforts to ensure liquidity.
• Near-term, there is considerable uncertainty about the outlook for the Australian economy.
• The degree of impact will depend on the success of efforts to contain the virus and for how long social distancing measures need to continue.
• A very large contraction in the economy and surge in unemployment is likely in the June quarter, however.
• The coordinated monetary and fiscal response, together with measures taking by Australian banks, will soften the impact and support an economic recovery.
• The Board will not increase the cash target rate until progress is being made towards full employment and it is confident that inflation will be sustainable within the 2-3% target band.

The Aussie Dollar moved from $0.61252 to $0.61474 upon release of the statement. At the time of writing, the Aussie Dollar was up by 0.92% to $0.6144.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead on the economic calendar. German industrial production for February is due out later this morning.

Any numbers skewed to the positive will likely have a muted impact on the EUR, with the markets all too aware of economic conditions in March and early April.

Outside of the numbers, the latest coronavirus numbers will continue to have a greater impact on the day.  Positive numbers for Monday provided early support.

At the time of writing, the EUR was up by 0.27% at $1.0822.

For the Pound

It’s also another relatively quiet day ahead on the economic calendar. March house price figures are due out in the early part of the day. We don’t expect the numbers to have any influence on the Pound, however.

Health updates on the British Prime Minister and coronavirus numbers for the UK will have a greater influence on the day.

There is quite a lot of negative chatter about the UK economic outlook at present, which is negative for the Pound. A marked fall in the number of new cases early in the week would provide some much-needed support, however. The sooner the containment measures take effect the less of an impact the virus will have on the economy.

At the time of writing, the Pound was up by 0.38% to $1.2277.

Across the Pond

It’s a quiet day ahead on the U.S economic calendar, with stats limited to February’s JOLTs job openings.

Following the last 2-weeks of jobless claims and the March nonfarm payrolls, the markets will likely brush aside the numbers.

Consumer confidence has taken a hit as a result of the coronavirus, which will also make quit rates redundant near-term.

Outside of the numbers, expect chatter from the Oval Office and the latest COVID-19 figures to influence, however. The risk-on sentiment through the early part of the day weighed on the Greenback.

The Dollar Spot Index was down by 0.13% to 100.553 at the time of writing.

For the Loonie

It’s a busier day ahead on the economic calendar, with March Ivey PMI numbers in focus later this afternoon.

While the BoC has already delivered 2 emergency rate cuts, we will expect the March figures to have some influence.

It will ultimately boil down to the outcome of the emergency OPEC et al meeting and risk sentiment.

The Loonie was up by 0.19% at C$1.4084 against the U.S Dollar, at the time of writing.