March 18, 2020 — 3 min read
The AUDUSD opens at 0.5753 and the The NZDUSD opens at 0.5744 this morning.
It is a sea of red out there, with a flight to safety the only game in town. Risk is being hit hard across the board, with the Australian and New Zealand dollars off almost 4%, US stocks off almost 10%, and oil another 23%. For a minute the AUD actually traded below parity with the NZD.
The Pound was one of the hardest hit with their number of COVID-19 cases jumping 33% to 2626 confirmed. What has been a big worry for a while now is the number of cases in the US, and frankly the under reporting of it due to the lack of testing going on. Their cases jumped from 4,275 to 7,087 yesterday, or a rise of 65%. You don’t need to have too many days compounding at 65% before you have an exceptionally high number of cases.
What makes it so hard to gauge is the disparity of testing going on. South Korea has tested 5,200 people out of every million. The US is at 74 per million. South Korea has confirmed cases circa 8,000 to the States 7,000 confirmed cases. If the US did the same number of tests as South Korea, how many confirmed cases would come to light? Using the above math just under 500,000. Where do rates go on a headline that the US has 500,000 cases? Now this is a bit alarmist, and there are many flaws with the logic. South Korea got hit earlier, and appears to have peaked with its growth rate, whereas the US is just getting into it. However, what we want to highlight is that it is going to get a lot worse before it gets better out of the States, and this is what the market is starting to think about by selling everything.
Also note, the US is just one example. Developing countries are going to be hit hard with this problem, with testing levels likely to be low. From a statistics point of view, it sounds obvious, but these are not random tests. As tests are expensive and finite, only the worst affected are getting tested, making it hard to make population-wide estimates between countries.
In what is almost not worth a mention theses days, the Reserve Bank of Australia's Governor Lowe is speaking at 16:00 AEST, with the a rate cut expected. Unless the cut hits 0%, we wouldn't expect much reaction on a .25% move.
Global equity markets are back down, Dow -9.7%, S&P 500 -9.6%, FTSE -4.0%, DAX -5.6%, CAC -5.9%, Nikkei -1.7%, Shanghai -1.8%.
Gold prices are off 2.5% to USD$1,485 an ounce. WTI Crude Oil prices are cratering, down 20.6%, to US$20.6 per barrel.
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