Overnight, the Reserve Bank of Australia Governor, Philip Lowe, provided some fresh insight on the wildfires ravaging the island nation and the impact of Coronavirus. He classified both as risks likely to impact inflation and economic growth but stressed that it was too early to say how much. Given the close deep reliance of the Australian economy on Chinese business, there were some fears Lowe would strike a more dovish tone. Instead, the RBA’s tack follows the cue of other major central banks, who have also declined to take evasive action based on the viral outbreak in China. What’s more, they have also echoed the concerns of other central bankers who have expressed increasing reluctance to use monetary policy as panacea for all economic ills.
Bottom line: Just this morning, we’ve seen reports that the Chinese Government are attempting to patent a drug by Gilead, which might combat the virus. This has spurred a small relief-rally, but we would say this is a temporary reaction, given the unsubstantiated nature of the drug’s efficacy. Again, economic data – US ADP Non-farm Employment change and ISM Non-manufacturing PMI – is falling by the wayside as the news headlines carry minute by minute updates on the Coronavirus story.
Yesterday the pair recovered early losses, rebounding from lows of 1.2949 and opened this morning’s session higher. The rebound – aided by better than expected PMI data this morning - puts Cable comfortably back into its 2020 trading range, trading just shy of its 50-daily moving average. US PMI’s and labour market data may provide further volatility this afternoon.
This morning’s better than expected Eurozone data has barely budged the currency-cross, which edged higher on London open driven by Sterling. However, the better than expected UK data release caused the pair to tick higher. Despite the small move, the currency cross remains in the middle of its year-to-date trading range, having opened above its 50-daily moving average for the first time this week.
This morning’s composite Eurozone Purchasing Manager’s Index (PMI) came in better than expected but failed to provide any short-term volatility for the common currency. The pair extends its record low volatility in the options market ahead of US PMI and labour market data out this afternoon. The pair continues to drift lower toward the 1.10 level after closing below the 100-daily moving average on Monday.