Sunday afternoon saw more emergency action from central banks to curb the economic impact of Covid-19. Firstly, the Reserve Bank of New Zealand slashed interest rates by 0.75% to a record low of 0.25%. This sent the Kiwi dollar plunging by over 2% as FX markets reopened for a new week of trade.
However, just as markets were finding their feet the Federal Reserve stepped in for another dose of emergency action. This time, they opted for the bazooka. They lowered interest rates to 0% – 0.25% corridor and also announced the recommencement of quantitative easing. They confirmed that they will purchase $700-billion of treasury and mortgage-backed securities. Markets were not overly impressed by these developments. The greenback weakened mildly while stock markets opened sharply lower. Many investors are still highly nervous about what lies ahead. Even though central banks are providing huge amounts of accommodation it’s still not enough to tempt investors back in. This week’s price action will be completely dominated by what occurs in respect to Coronavirus and the measures taken to stem its negative impacts. Central banks have been incredibly active over the previous few weeks and it’s now become clear their ammunition to address the problem is waning. As a result, the focus will be on governments and their actions in addressing the spread.
9:59am, March 16th 2020
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