24 Hours of Market Mayhem

Xe Corporate APAC

March 9, 2020 3 min read

The AUDUSD opens 0.5% lower at 0.6588 this morning - it's been on a wild ride the past 24 hours – plunging to an 11-year low of 0.6313 yesterday lunchtime before roaring up to 0.6680, a 2 1/2-week high, early this morning.

The NZDUSD opens little changed 0.6350 this morning. However, don’t be fooled by the apparent small change as the bird has been on a wild flight the past 24 hours – plunging to an 11-year low of 0.6013 yesterday afternoon before soaring above 0.6440, a 4-week high, early this morning.

It’s been market mayhem.

Yesterday, as the markets opened for the week, oil prices were in freefall, dropping over 33% at one point, after Saudi Arabia and Russia initiated a retaliatory price war after production cut disagreements. The International Energy Agency said oil demand was set to contract for the first time in over a decade as a consequence of demand dampening effects of the coronavirus.

The USDJPY started the rot in the currency markets by falling over 300 points in short order yesterday. This sparked liquidation of AUDJPY trades, once a favour carry-trade, with the selling spilling over to the AUDUSD as it plunged from above 0.6600 to 0.6313 in 20 minutes in a brutal move before staging a recovery. The AUDUSD even managed to hit a 2 ½ week high of 0.6680 overnight before retreating once again.

Global equity markets reacted with horror to the oil market rout. The US Dow Jones index plummeted a record 2000 points at one stage, as all the major global equity indices suffered a bloodbath in losing 5 to 8% of value – this is at least AUD$7 trillion from a quick back of the envelope calculation.

The bond markets were also extremely volatile with yield on the US 10-year bond falling as low as 0.32% before climbing back to 0.52%. The NZ 10-year bond is yielding under 0.90%. The bond markets have been benefiting from safe haven bids.

Pressure will be racketing up against the global central banks to respond to the market rout and extreme volatility. Market pricing suggests the US Fed will slash rates by at least another 0.50%, on top of last week’s 0.50% cut, with expectations the RBA will cut another 0.25% from the Cash Rate. Other central banks will follow similar paths.

The JPY and CHF surged from safe-haven buying, as risk appetite fell through the floor. The EUR also surged 1.6% to the highest level in 13 months against the USD, while the GBPUSD gained 0.6%.

On the domestic data front, NAB Business Confidence numbers will be released at 11:30am AEST.

NZ quarterly Manufacturing Sales numbers will be released at 10:45am NZST – this won’t be a market-mover. The RBNZ’s Governor Orr 2.00pm speech on the use of unconventional monetary policy tools – this will be listened to with great interest.

Global equity markets smashed - Dow -6.4%, S&P 500 -6.2%, FTSE -7.7%, DAX -8.0%, CAC -8.4%, Nikkei -5.1%, Shanghai -3.0%.

Gold prices rose 0.1% to USD$1,674 an ounce. WTI Crude Oil prices were in free-fall, losing 25.5% to US$30.94 per barrel on the back of the Saudi Arabia – Russia oil price war.

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