Last week saw a return to risk-off flows over the spread of the coronavirus from Wuhan, China. The coronavirus has continued to spread rapidly and the market saw strong flows into JPY and the CHF. Global and Asian equity markets have continued their falls on concerns the latest virus is going to be a drag on the Asian-Pacific economies. On Wednesday, the Fed kept rates on hold, but markets are now pricing in two rate cuts this year. The Bank of England didn’t cut rates on Thursday, despite some speculation it would, which led to the GBP rallying on relief.

Key events from the past week

• AUD: Inflation Surprise, Wednesday, Jan 29. The inflation data was a surprise beat at 0.7% vs 0.6% q/q, but this was in part due to the increase in prices due to the Australian bush fires. The AUD strength out of the print was faded. This was due to risk-off flows seeing the AUD lose value on coronavirus fears.
• USD: Federal Reserve Rate Decision, Wednesday, Jan 29. The Fed kept rates unchanged at 1.50-1.75% as expected. The USD fell lower as, though little was changed on the statement, the market found Powell dovish in the press conference and the market is now pricing in a 52.8% chance of two US rate cuts this year.
• GBP: Bank of England Rate Decision, Thursday, Jan 30. The BoE kept rates unchanged and only two dissenters wanted a rate cut while the market was expecting three dissenters. This led to the GBP rallying. The key focus for the GBP going forward is going to be inflation data and EU/US trade deals.

Key events for the coming week

• AUD: Rate Statement, Tuesday, Feb 04. The market is not expecting a rate cut next week with odds of a cut at ~15%. With little chance of the RBA moving away from their dovish bias and coronavirus fears weighing, as well as the impact of the Australian Bush fires, I am expecting AUD sellers on retracements.
• USD: Non-Farm Payrolls, Friday, Feb 07. The Fed kept rates on hold last week and said that consumer growth was moderate vs strong in the December report. A strong NFP reading will help underpin any recovery for the US Consumer as wage growth flows through into consumer spending.
• Coronavirus: Watch out for the latest virus news. This week looks for signs of the coronavirus peaking in its spread. If the market becomes reassured around containment of the virus, expect equities and commodities to both recover.