Australian, New Zealand dollars burdened by coronavirus confusion

[SYDNEY] The Australian and New Zealand dollars wavered on Thursday after China reported a steep rise in new coronavirus cases and deaths, challenging hopes the disease was being contained. Health officials in Hubei province said 242 people died from the flu-like virus on Wednesday, while the number of new cases surged to 14,840 as they began including people diagnosed through new clinical methods.

The sudden increase stirred concerns the economic fallout from the outbreak could be greater than first thought, though markets were reluctant to take prices too far given the uncertain situation.

As a result the Aussie initially dropped 20 ticks to US$0.6707 on the news, only to then steady around US$0.6727. Support rests at US$0.6700 with resistance at US$0.6750.

The kiwi dollar fell almost 30 ticks at first to as low as US$0.6432, before steadying at US$0.6450. It had stretched as high as US$0.6487 on Wednesday after the country's central bank surprised by dropping its easing bias.

Reserve Bank of New Zealand (RBNZ) Assistant Governor Christian Hawkesby on Thursday said it had switched to a neutral bias on interest rates due to an improving local economy.

He emphasised the bank would review that position should the coronavirus look like having a deeper and longer impact than currently expected.

"Local economic developments since November, and some easing of trade tensions, certainly justify taking a further cut off the table," said Jarrod Kerr, chief economist at Kiwibank.

"But we think it's premature to discount the chance of a further cut this year," he added. "We're not as confident the impact of the coronavirus will be contained in the next few weeks, and dissipate without need of assistance."

Markets are pricing in little chance of a move at the next policy meetings in March or May, but around a 44 per cent probability of an easing by year end.

Also speaking on Thursday, Reserve Bank of Australia (RBA) Governor Philip Lowe reiterated his concerns that a cut in local rates could fuel an unwelcome borrowing binge at a time when home prices were already rising rapidly.

The central bank surprised many last week when it lifted the bar to further easing, leading investors to scale back wagers on a move in the next few months.

Futures imply around an 18 per cent chance of a quarter-point cut by April, rising to 48 per cent by June.

Three-year bond futures stood at 99.255 on Thursday, and well off a recent peak at 99.455, though they did find some support from the latest coronavirus scare.

The 10-year contract was steady at 98.9250, implying an yield of 1.075 per cent.

REUTERS