13th March 2020 - USD roars higher, AUD sells off aggressively to fresh lows



Good morning


OVERNIGHT DATA AND HEADLINES


• Global stocks plunged into a bear market and oil slumped further after stimulus efforts from the European Central Bank failed to calm investors alarmed by U.S. moves overnight to restrict travel from Europe over the spread of the coronavirus.

• Trading was halted for 15 minutes shortly after the open in New York after the S&P 500 index fell more than 7%. The Dow Jones index was on course for its worst performance since Wall Street's "Black Monday" crash of 1987, as President Donald Trump's move to curb travel from Europe added to growing corporate distress over the coronavirus pandemic. Dow Jones was down 8.76% at 21,470, the S&P 500 was down 8.30% at 2,514 and Nasdaq was down 7.59% at 7,393.

• European shares plunged 11.5% on Thursday, their worst daily loss on record, as responses by governments and central banks to combat the potential economic hit from the fast-spreading coronavirus got a cold welcome.

CURRENCIES


• Demand for USD via the currency derivative market surged to the highest levels in years in a sign that coronavirus-induced economic stress is starting to manifest itself in a broad scramble for USD funding. DXY index ended 0.90% higher at 97.36 after jumping from 96.20 to 98.30 highs.

• China's yuan fell - onshore CNY opened at 6.9800 and was changing hands at 7.0282 upon NY close (0.98%).

• EUR fell from 1.1310 highs down towards a 1.1080 low however managed to regain losses back towards 1.1225.

• GBP fell from 1.2820 to a 1.2490 low and rebounded up towards 1.2610.

• AUD crashed lower to a fresh low at 0.6215 after a wave of risk aversion swept markets. AUD slipped 3.61% to open this morning at 0.6230.

• NZD eased 2.06%, falling from a 0.6275 high to a 0.6090 low. NZD opens this morning around 0.6140.

• AUDEUR fell another leg lower from 0.5720 down towards 0.5620 lows.

• AUDNZD broke through 1.0300 supports to trade down towards 1.0250 lows. Opens at 1.0275.


TREASURIES


• Longer-dated U.S. Treasury yields rose after the New York Federal Reserve took dramatic steps to boost liquidity in the banking system, in an attempt to address liquidity concerns in the Treasury market.

• The 10-year note yield was last at 0.882%, after falling towards 0.63% lows and rebounding late in the session.

• Thirty-year Treasury yields were at 1.481% whilst the Two-year Treasury yields were trading at 0.497%.

COMMODITIES


• Palladium plunged as much as 28% overnight as panic selling driven by intensifying fears over the coronavirus pandemic seeped into precious metals, with Gold plummeting over 4% from $1,642 per ounce down to $1,560 per ounce.

• Iron ore futures in China edged higher as fewer new coronavirus cases in the country outweighed negative sentiment stemming from a rout in global equities that fell after the World Health Organization (WHO) labelled the virus a pandemic. Iron ore prices in the physical market also remained volatile, with the benchmark 62% iron ore rising to $91.50 a tonne after falling to $90.80 the day before.

• Copper fell to its lowest in over three years after the U.S. imposed curbs on travel from Europe due to the coronavirus and gave little detail on other plans to cushion its economy from the pandemic. Three-month LME copper ended 1.6% lower at $5,440 a tonne, after falling as low as $5,376.50, its weakest since November 2016.

• Brent crude slid 8% after U.S. President Donald Trump restricted travel from Europe among measures to halt the spread of coronavirus. Brent crude was down $2.83, or 7.9%, at $32.96 a barrel. U.S. West Texas Intermediate Texas crude was down $1.85, or 5.6%, at $31.13.

ECONOMIC DATA TODAY


• No Australian Economic data today.

• NZ - Feb manufacturing PMI 49.6. Coronavirus concerns will add to existing headwinds. Feb food price index 2.1%. Feb REINZ house sales –3.7%. Feb REINZ house prices %yr 7.0%.

• Germany - Feb CPI %yr (last 1.7%, forecast 1.7%). Final estimate for month. No revision expected.

• US - Feb import price index (last 0.0%, forecast –1.0%). USD has suppressed import prices over the past year.

• Mar Uni. of Michigan sentiment (last 101.0, forecast 96.4) – COVID–19 to jolt confidence as US outbreak seen.


AUD THOUGHTS


AUD took an absolute beating overnight, falling to 0.6215 lows this morning as risk sentiment headed lower once again. All asset classes were aggressively sold - stocks, commodities, yields, with the initial USD being offered turning into bids as broad risk exits put pressure on USD funding.

With the ECB leaving rates unchanged (but adding liquidity) markets were disappointed with a barrage of selling in EUR and other major currency pairs.

Dollar liquidity is king in times of crisis and could mark a three-week long worldwide rout in shares and riskier bonds giving way to a rush for further USD.


AUD's fall from its recent March 9 peak at 0.6685 is deepening despite market expectations for aggressive Fed policy moves. The severe risk-off sentiment has helped increase the probability of a 100bps Fed rate cut. The USD is not selling off on those rate expectations, though, and investors appear to be scrambling to buy USD. Emerging market currencies are broadly weaker. The USD index has spiked up sharply and is threatening to break above the 55- and 200-DMAs.

Further bearish pressure on AUD is coming from RBA expectations. Rates markets have fully priced in the cash rate being cut to 0.25% and there is a slight probability priced in for a drop to 0.0%. The RBA has said that QE would be considered if the cash rate was to reach 0.25% so a cut to zero

might not happen.

No Australian data to digest today – look for any sign of hopes in corona virus fear containment and potential USD reversal to alleviate any further continuation in AUD selling.


TECHNICAL OUTLOOK


AUD selloff has broken through every critical support level - 0.6245/85 was the last area, where the monthly lows of February and March 2009 as well as the 76.4% Fibo of 0.4775-1.1081 sit.

From here any support levels take reference from 2008/2009 lows where AUD fell to 0.6004 on the 27/10/2008 at the height of the GFC.

RSI’s remain weak and potential for further downside risk remain.




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