19th March 2020 - AUD biggest casualty in market melt down



Good morning


OVERNIGHT DATA AND HEADLINES


• Global equities tumbled anew on Wednesday, with bond and gold prices also falling in an unusual tandem, as markets grappled with the sheer scale of government programs and handouts aimed at softening the economic shockwave from the coronavirus.

• The Trump administration asked Congress to approve $500 billion in cash payments to taxpayers in two rounds starting April 6 and $50 billion in secured loans to U.S. airlines to address the outbreak's impact.

• The U.S. Treasury and the Internal Revenue Service said they would allow U.S. individuals and corporations to defer making certain tax payments until July 15 with no penalties or interest, to mitigate the economic impact of the coronavirus pandemic. The April 15 filing deadline will remain in place, but postponing the deadline for certain tax payments will keep about $300 billion of additional liquidity in the economy, the Treasury Department and the IRS said in a statement. The measure would allow individuals and other non-corporate tax filers to defer up to $1 million of federal income tax until July 15, while corporate taxpayers could defer up to $10 million in tax payments.

• Wall Street's four-week slump deepened and the Dow Jones Industrials was set to surrender all its "Trump-bump" gains, as the coronavirus pandemic threatened to bring the U.S. economic activity to a grinding halt. Dow Jones was down 8.87% at 19,353, the S&P 500 down 8.00% at 2,332, Nasdaq was down 6.35% at 7,000.

• European CPI for February rose 0.2% MoM and 1.2% YoY to match expectations. Little reaction to the data with risk aversion dominating.

• US housing data was mixed with February Housing Starts down by 1.5% to to 1.599 mio though this was better than expectations of a 4.3% decline to 1.500 mio while Building Permits fell 5.5% to 1.464 mio which was worse than the expected decline of 3.2% to 1.500 mio.

• Canadian CPI rose 2.2% YoY in February, 0.1% higher than expected.

CURRENCIES


• The USD surged across the board, hitting multi-year highs against several major currencies, as markets rushed to the perceived safety of USD. DXY index was about 1.85% higher at 101.73, its highest level since April 2017. The index was on pace for its largest one-day jump since June 24, 2016.

• China's CNY weakened on strong global demand for USD and after the People's Bank of China (PBOC) guided the currency lower through its daily fixing. PBOC set the midpoint rate of the yuan's daily trading band at 7.0328 however it depreciated further towards 7.0466.

• EUR fell from 1.1040 highs down towards 1.0800, rebounding back towards 1.0900 into the NY close.

• GBP plummeted lower from around 1.2100 highs down towards 1.1460 lows.

• AUD was ravaged after toppling to 17-year lows, this time falling around 300 bps (3.42%) to record a 0.5699 low (a level not seen since Jan 2003).

• NZD was also on the ropes falling 3.08% to a 0.5693 low.

• AUDNZD briefly broke through 1.0000 to a 0.9997 low (lowest recorded level for the pair).

• AUDEUR fell another 160 points lower, hitting a 0.5272 low

TREASURIES


• U.S. Treasury yields touched high marks late in a volatile trading session as investors watched for the U.S. response to the coronavirus pandemic to take shape and said lower trade volumes made market signals less clear.

• The benchmark 10-year yield was up 18 basis points at 1.1767% in afternoon trading after swings that took it above 1.25% and below 1% at several points during the day. The wide trading ranges seemed to reflect reduced liquidity.

• The two-year U.S. Treasury yield was up 7.3 basis points at 0.54% in afternoon trading.

• The U.S. 2-10 yield curve was at 62 basis points, about 6 basis points higher than Tuesday's close and at its highest levels since early 2018.

• Italian bonds rallied sharply as the market anticipated crisis purchases by the ECB, while German 10-year bonds were set for their worst day since the financial crisis as investors dumped highly liquid debt.


COMMODITIES

• Gold dropped nearly 3% as investors dumped precious metals in favour of cash after additional stimulus measures by the United States failed to calm markets. Spot gold was down 2.8% to $1,485.06 per ounce.

• China's iron ore futures rose on further policy support for an economy battered by the coronavirus pandemic, before closing well off the session's peak that was the highest in more than seven months. Industry benchmark 62% iron ore's spot price stood at $92 a tonne, the highest since Feb. 24.

• Copper prices crashed below $5,000 a tonne for the first time in more than three years as growing expectations of surplus metal were reinforced by large deliveries to London Metal Exchange-registered warehouses. Benchmark LME copper ended down 7.8% at $4,840 a tonne in LME ring trading.

• Oil prices plunged, with U.S. crude futures hitting an 18-year low, as governments worldwide accelerated lockdowns to counter the coronavirus pandemic that is causing global fuel demand to collapse. U.S. crude fell $5.47, or 20%, at $21.48 a barrel. The session low was the lowest since February 2002. Brent crude was trading down $3.47, or 12%, at $25.25 a barrel after dropping as low as $24.72, its weakest since 2003.

ECONOMIC DATA TODAY


• Australia - Feb employment (last 13.5k, forecast 8.5k). COVID-19 was just breaking out of China in Feb so the impact will be in hours worked rather than employment.

• Australia - Feb unemployment rate (last 5.3%, forecast 5.3%).

• NZ - Q4 GDP (last 0.7%, forecast 0.6%_. Firmer services sector activity, with softness in goods.

• Japan - Feb CPI %yr (last 0.7%, forecast 0.5%). Inflation pressures weak, and likely to decelerate further.

• US - Mar Phily Fed index 36.7 10.0 – Manufacturing to be hit in coming months by COVID spread.

• US - Initial jobless claims 211k – – A key barometer of business response to COVID-19.

• US - Feb leading index 0.8% 0.1% – Will fall materially below trend in coming months.


AUD THOUGHTS


AUD bears were firmly in the driver’s seat overnight, sending AUD plummeting lower to a new 17 year low at 0.5699 sending. Markets continue to flock to the USD’s safe-haven status as many assets such as long positions in equities, commodities and global government bonds are liquidated.

That safe-haven status has investors shunning emerging market and high beta currencies like the AUD.


Further downward pressure on AUD comes from RBA expectations with the central bank scheduled to meet today to announce a rate cut and QE program (2.30pm).

Markets widely expect the RBA to cut its cash rate a quarter point to 0.25% and announce a move to quantitative easing, including buying government bonds.

The RBA's announcement follows an unprecedented and large step up in global coordination by central banks, governments and regulators since the start of this week to cushion the economic impact of the coronavirus.

More tailored measures are also expected such as a UK-style Term Funding Scheme whereby the RBA would provide cheap loans to banks on the condition they lend to businesses at a favourable rate.

The purchase of semis, or state government bonds, and residential-mortgage backed securities (RMBS) are also possibilities. The RBA said earlier this week it would conduct repo operations of six-months maturity or longer at least weekly, "as long as market conditions warrant."

While the measures are welcome and desperately needed, economists said they still won't be enough to prevent the country's first recession in nearly three decades.


Also out today will be the Australian employment / unemployment data. For the moment, economic data releases seem to be having no impact on currency markets worldwide.

For the AUD, intervention to stem the USD’s rise seems unlikely at the moment with expectations the AUD's fall is likely to deepen.


**For those interested in AUD historical trading:

• The lowest point the AUD has reached since the float in 1983 has been 0.4773 (recorded on 02/04/2001). The next lowest level was 0.4814 recorded on 21/09/2001.

• Another interesting fact was that back in 2008 when the GFC hit global markets, AUD was trading at a high of 0.9849 (15/07/2008) and had dropped nearly 38.5 cents to 0.6004 lows on 27/10/2008 (just over 3 months).


TECHNICAL OUTLOOK


AUD probe of key support begins, bears remain unrelenting. USD buying persists across many asset classes, AUD slide deepens.

AUD trades to new 17-year lows - bears have full control for the time being. Demand seems to have dried up for the time being as any attempt to establish new longs seem futile.





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