Coronavirus fears have dominated the news once again as central banks around the world cut interest rates in response to the spreading virus. The Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) both cut interest rates this week at their rate meeting. The Federal Reserve announced a 50bps rate cut, as a surprise cut, before their scheduled March 18 meeting. More cuts are expected from central banks going forward. As long as the coronavirus keeps spreading, and more cases continue to emerge, then we can expect further falls in global equity markets, buyers of US Treasuries and buyers into gold and silver.
Key events from the past week
- AUD: RBA cuts by 25bps, Tuesday, March 3. The RBA was the first central bank to cut interest rates and the AUD initially rallied on the cut. The reasoning was that the RBA’s cut was fully expected and their rationale for cutting was seen as less dovish than the market feared.
- USD: Fed cuts rates, Tuesday, March 3. The Dollar Index fell as the Federal Reserve announced an emergency 50bps rate cut in response to the increasing coronavirus threat. This was the first 50bps cut since late 2008. Expectations are growing that the Fed will cut again by 25bps on the March 18 meeting.
- CAD: Bank of Canada cuts, Wednesday, March 4. The CAD was pressured this week as the BoC cut interest rates by 50bps on Wednesday. This was 25bps more than most market analysts were expecting. Expect CADJPY sellers next week as long as the risk-off tone on coronavirus fears remains.
Key events for the coming week
- EUR: ECB rate meeting, Thursday, March 12. Expect the ECB to follow the lead of the Federal Reserve and cut rates. Analysts are expecting a rate cut of10bps. Any deviation from the expected rate cut will move the EUR as the market has to ‘re-price’.
- USD: Core CPI (Inflation), Wednesday, March 11. The Core CPI data is a key focus for the FED. A weak reading here and expectations will increase for a further 25bps on March 18 which will result in further dollar weakness.
- Coronavirus: Watch out for the latest virus news. The impact of the coronavirus will be further felt this week as behavioral changes start to further impact markets. Expect profit warnings, falling equities (the DAX is especially vulnerable), falling oil demand and growing bids into gold and silver.