Central Bank make further cuts and introduce forms of QE

Weekly Market Update: 23 March 2020

As COVID-19 continues to both infect more and create havoc in markets, we continue to find new lows in AUD. The past week saw an illiquid spiral to 0.5510, later supported by RBA comments they will intervene at illiquid bouts – but they didn’t actually intervene at that point or earlier.

The moves in currency remain that of liquidation and margin calls – thus USD has generally strengthened and Safe Haven currencies like EUR, CHF and JPY have not correlated with stock market routs nor has Gold rallied as most expected.

Globally, Governments and Central Banks have taken “whatever it takes” stances to flood the market with liquidity, job security or income security, whilst closing down non-essential services in various areas. There is still panic outweighing looking past infection as we have seen a near doubling of cases from a week ago to 337k globally and sadly doubling in deaths to 14,654.

New cases outweigh recovery with a large portion of 99k recoveries coming from China at 73k. It is not until we have a vaccine or we see peak infection that most will have positive sentiment, but also creates opportunity.

Key Themes

  1. Central Bank further cuts and introduce forms of QE.
  2. Governments implement closures of non-essential business whilst announcing avg 4% of GDP Fiscal spends.
  3. The risks aren’t abating, COVID-19 doubles in a week despite quarantine efforts.


AUD has been symptomatic of selloffs and illiquid moves, this week doesn’t look to be any different. We had a 4c round trip within 27hours and volatility is well above 20% through to 6month tenors.
The positives of Fiscal and Monetary Stimulus (Monetary 0.25% cut and Rate targeting, Fiscal now 3.5% of GDP are overlooked as the country starts to shut down and questions economic growth continue.
On the flip side, the US is not getting legislation through fast enough, testing is only occurring now and despite the Fed’s emergency meetings, cash rates have little effect on homeowners with 30yr rates. This, longer-term, should be seen as negative USD.
Technically, we are in extremes of oversold 14%, longer-term not seen since 2001 – where 0.4776 was the low post tech boom. It won’t be a straight line to this as the RBA will consider smoothing/verbal intervention should we see again poor liquidity and this is not a fait accompli as with all things, this time it’s different.  

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