The Australian dollar has held up pretty well against it’s US counterpart in the wake of the Reserve Bank of Australia's decision to slash the cash rate by 25 basis points, which brings the country’s interest rate down from 0.75 percent to 0.50 percent.
One of the main reasons the RBA decided to cut rates was because of the coronavirus and the devastating effects it is having on the Chinese economy which is flowing over to Australia, as China is it’s biggest trading partner
"The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected," said Philip Lowe, after the interest rate announcement.
The latest rate reduction was already priced into the market which go some way to explaining why the Aussie dollar gained after the decision, but any further rate cuts are not currently priced in so if the momentum gathers for more cuts the Australian dollar is likely to suffer.
"We expect a follow‑up 25bp cut in April, the AUD/USD can fall back below 0.6500 because we expect the global and Australian economic data to deteriorate further because of the coronavirus." said Joseph Capurso, FX Strategist at Commonwealth Bank of Australia. "
The Australian dollar did receive some unexpected good news yesterday when the US Federal Reserve slashed interest rates yesterday in an emergency meeting by 50 basis points, their biggest one-time cut, since the depths of the 2008 financial crisis.
This was also in response to the coronavirus which is also beginning to take its toll on the US economy
“The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” The Fed was “prepared to use our tools and act appropriately, depending on the flow of events.” Said Fed President Jerome Powell
“We do recognize that a rate cut cannot reduce the rate of infection, it won’t fix a broken supply chain,” Mr. Powell said. “We get that, we don’t think we have all the answers.” He added.
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