AUD/USD, NZD/USD Sink as China Rate Cuts Fail to Impress

AUD/USD, NZD/USD, CHINA, CORONAVIRUS, STOCKS - TALKING POINTS:

• AUD and NZD sink with stocks as China rate cuts fail to impress
• Gold prices, Treasury bonds rise as risk aversion sweeps markets
• S&P 500 futures suggest risk-off momentum likely to be sustained

The Australian and New Zealand Dollar sank alongside Asia-Pacific stock prices after China failed to impress financial markets with a widely expected injection of monetary stimulus. The US Dollar and Swiss Franc attracted the bulk of anti-risk capital flows in the G10 FX space while gold and US Treasury bond prices rose in tandem. The Japanese Yen struggled to follow suit as it digested yesterday’s selloff.

Chart created with TradingView

China cut the prime rate on one-year loans by 10 basis points to 4.05 percent. The prime rate on five-year loans was reduced by 5 basis points to 4.75 percent. Both outcomes registered squarely in line with the markets’ baseline expectations, suggesting they had been priced into assets before the news hit the wires. The response from across the markets hints that investors found little to be excited about beyond this.

Taken together with the earlier release of FOMC meeting minutes that telegraphed little urgency in offering additional policy support, China’s action underwhelmed. That seems understandable against the backdrop of a broadening threat from the Wuhan-strain coronavirus. Japan reported two deaths linked to the outbreak and the number of cases in South Korea more than doubled in a single day.

More of the same looks likely ahead. A sharp drop in futures tracking the Euro Stoxx 50 index – a benchmark for Euro area stocks – as well as analogous contracts tracking the UK’s FTSE 100 and the US’ S&P 500 suggests risk-off asset price dynamics will carry through the remainder of the trading day. A relatively light day on the economic data seemingly offers few roadblocks to continuation.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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