The Australian and New Zealand Dollars are trading lower early in the session on Thursday. Both traded higher the previous session as investors continued to make adjustments to the Federal Reserve’s surprise 50 basis point rate cut on Tuesday. Lower U.S. Treasury yields and increased demand for higher-yielding assets also supported the commodity and export driven currencies.
RBA Cuts Rates
Australia cut its benchmark interest rate to a record low on Tuesday, putting its central bank among the first in the world to ease policy to fight the economic fallout from the coronavirus.
The was the fourth reduction by the Reserve Bank Australia (RBA) in less than a year, bringing the cash rate to 0.5% amid mounting evidence momentum showing the Australian economy has stalled.
In a short post-meeting statement Governor Philip Lowe said the coronavirus epidemic was having a “significant” hit on Australia’s economy and that it was difficult to predict how large and long-lasting the effects will be.
The Board “will continue to monitor developments closely and assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further to support the Australian economy,” Lowe added.
Australian Economic Growth Picks Up in 4th Quarter but Outlook Cloudy
Australia’s economy expanded by more than expected last quarter, easing the risk of a recession even as raging bushfires and the coronavirus wreaked havoc with tourism and travel at the start of the year, Reuters reported.
The threat from the epidemic prompted the RBA to cut interest rates to an all-time low of 0.5% this week, part of an urgent global response that saw the U.S. Federal Reserve spring an emergency policy easing on Tuesday.
Australian Treasurer Josh Frydenberg welcomed Wednesday’s data showing the economy expanded by 0.5% last quarter, clocking its 29th consecutive year of growth without a recession.
But as the outlook for the current quarter gets murkier given the rapid spread of the coronavirus, Frydenberg flagged an imminent fiscal stimulus.
“The government is working on a targeted, responsible and saleable series of measures that are designed to keep business in business, and Australians in jobs,” Frydenberg told reports in Canberra.
Coronavirus to Lower Australia Q1 GDP by 0.5 Percentage Points
Australia’s Treasury Department estimates the coronavirus will detract at least half a percentage point off growth in the first quarter of 2020, but says it is too early to make a longer-term assessment of the impact of the virus, Reuters reported.
“At this stage we expect the virus to detract at least half a percentage point from growth in the March quarter 2020,” Treasury Secretary Steven Kennedy told a parliamentary committee in Canberra.
“This preliminary estimate takes into account the direct impacts on tourism, international education exports and some exchange rate effects. It does not include supply-chain disruptions or other broader impacts.”
At 00:30 GMT, AUD/USD investors will get an opportunity to react to the latest Australian Trade Balance data. It is expected to show a surplus of 4.80 Billion, down from 5.22 Billion. The impact of the coronavirus on the Chinese and Australian economies will be blamed.
A lower number will be in line with forecasts calling for a deterioration in the economy.
This article was originally posted on FX Empire
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