Aussie, kiwi downtrodden as funds flee virus risks

News that the United States might have the first case of community spread COVID-19 combined with the rapid spread of the disease in South Korea slugged stock markets anew on Thursday and shoved local bond yields toward all-time lows.

That left the Aussie downtrodden at $0.6554, having shed 0.9% overnight to a fresh 11-year trough of $0.6542. There was now little in the way of chart support until a $0.6280 low from March 2009.

The New Zealand dollar likewise slipped to its lowest since October at $0.6284 and looked set to test support around $0.6240.

"We continue to believe AUD/USD can test $0.6500 in the near term because of concerns the coronavirus will slow the global economy," said Joseph Capurso, a senior currency strategist at CBA. "Pricing for RBA rate cuts is also bearing down on AUD."

Investors have aggressively ramped up bets on policy easing in recent days, both in Australia and across the globe.

Most still doubt the Reserve Bank of Australia (RBA) would ease at its policy meeting next week given it had only recently argued for a period of stability and it was far too soon to gauge the full impact of the virus domestically. Yet the implied probability of a cut to 0.5% in April has steadily grown to 40%, while a move in May is put at 68%. June is almost fully priced in and the chance of a further cut to 0.25% is priced as a 50-50 bet.

Australian government bond futures have been rallying for more than a week lifting the three-year bond contract to 99.425, not far from the record top of 99.460.

The 10-year contract added another 4 ticks on Thursday to reach 99.1250, implying a yield of 0.8750%. Domestic data again underlined how vulnerable the economy was even before the virus hit. Business investment fell 2.8% in the December quarter, when analysts had looked for a rise of around 0.4%.

Copyright Reuters, 2020

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