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Australian, New Zealand dollars struggle, more policy stimulus unveiled

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The Australian and New Zealand dollars hovered near decade lows on Tuesday as the mounting economic damage from the coronavirus kept investors on edge, although a hefty helping of fiscal stimulus in New Zealand gave the kiwi a lift.

[SYDNEY] The Australian and New Zealand dollars hovered near decade lows on Tuesday as the mounting economic damage from the coronavirus kept investors on edge, although a hefty helping of fiscal stimulus in New Zealand gave the kiwi a lift.

The Aussie crawled up to US$0.6112 after touching an 11-year trough of US$0.60765 on Monday, when global financial markets sank further, forcing distressed selling of profitable assets to cover losses elsewhere.

The currency was now close to the 2008 low of US$0.6007 and a break there would take it to depths not seen since April 2003. "We have updated our FX forecasts in light of the growing economic, financial and health crises," said Elias Haddad, a senior currency strategist at CBA. "In our view, AUD/USD will fall to US$0.5700 in Q2, though a fall to US$0.5500 or even lower, is possible."

The kiwi inched up to US$0.6049, having touched a low of US$0.5929 on Monday in the first fall under US$0.6000 since mid-2009.

The slight bounce was helped by the announcement of a NZ$12.1 billion (S$10.4 billion) fiscal package that amounted to 4 per cent of GDP.

"The package is big, bold and beautiful in parts," said Jarrod Kerr, chief economist at Kiwibank. "It goes some way to backstopping business, and reducing the risk of a rise in defaults."

"But we still believe there's a need for targeted term lending via bank channels. We're in recession after all."

The move followed an emergency rate cut of 75 basis points from the Reserve Bank of New Zealand (RBNZ) on Monday.

The Reserve Bank of Australia (RBA) will release new stimulus steps on Thursday, as minutes of its last policy meeting showed it viewed the impact of the virus on the economy and markets as "unprecedented".

Like most analysts, NAB economist Kaixin Owyong believed the RBA will cut rates a further quarter point to 0.25 per cent and outline plans for controlling the yield curve.

"That would see the RBA committing to buying government bonds for monetary policy purposes as it targets bond yields to ensure risk-free interest rates stay low," he added.

"Additional policies cannot be ruled out, particularly if the bank detects any problems in the supply of credit in the financial system."

The conservative government of Prime Minister Scott Morrison has also floated plans for a second stimulus package, having released its first fiscal steps just last week.

Government bond futures were mixed with the longer-end pressured by talk stressed investors were having to sell to raise cash to cover losses in stocks. The 10-year contract slipped 9.5 ticks to 99.0100.

REUTERS