The AUDUSD opens higher at 0.6602 and the NZDUSD opens higher at 0.6284 this morning.
The US Federal Reserve cut their Fed Funds rate by 50 basis points overnight, moving their range down to 1.00-1.25%. The move had been flagged on Friday and US Share markets had staged a big rebound on Monday night in anticipation of the rate cut.
This is the first emergency rate cut since the financial crisis and whilst we are not entering another GFC, there is heightened uncertainty about the economic effect from the COVID-19 Virus and so the Fed have done what they can to help.
In the markets the US Dollar is weaker and the AUD and NZD are both sharply higher in response. The Reserve Bank of Australia also cut rates yesterday by 0.25% bringing their cash rate down to 0.50%. This move was also widely anticipated but the Aussie Dollar strengthened afterwards as the market saw the longer term prospects for the economy as improving with the RBA finally becoming more proactive.
The Reserve Bank of New Zealand are now widely expected to cut interest rates this month. It is unclear if they will do that today or wait until their scheduled meeting on March 25th. The RBNZ Governor Adrian Orr has a track record of surprising the market so an early move seems likely. If/when the RBNZ cut the cash rate, we could well see more upside in the AUDNZD cross rate as the rate difference with Australia narrows back in.
Obviously interest rate cuts cannot cure the COVID-19 Virus, but making money cheaper and more readily available will help ease the economic strain. The NZ and Australian Governments are looking at tax relief for small businesses to help them through the crisis and they are also looking at ways sick leave can be extended if needed to allow longer quarantine time if people become infected with the virus.
So the uncertainty around the virus is set to continue but against a backdrop of cheaper money and more stability in the financial world.
Global equity markets were mixed overnight - Dow -3.07%, S&P 500 -2.90%, FTSE +0.95%, DAX +1.08%, CAC +1.12%, Nikkei -1.22%, Shanghai +0.74%.
Gold prices rose 2.3% to USD$1,631 an ounce and WTI Crude Oil prices rose 0.5% to US$46.98 per barrel.
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