The Australian and New Zealand Dollars are trading sharply lower on Tuesday as traders continue to price in a recession as well as aggressive monetary policy action from their respective central banks and fiscal stimulus from their governments.
Early in the session, the Reserve Bank of Australia (RBA) pumped A$8.8 billion ($5.39 billion) into the banking system, well above its original intention of A$2.06 billion.
The move helped drive Australian shares over 5% higher on Tuesday, a day after posting their biggest fall since 1987, but the central bank cash injection, which was well above its original target, weighed on the Australian Dollar.
On Monday, the RBA said it would announce more policy steps this week as global policymakers look to soften the damaging impact of the coronavirus pandemic.
The RBA made the move to avert a liquidity crunch and shore up lending. “Contributing to this de-risking will be the additional actions the RBA takes at its ‘special’ meeting on Thursday,” ANZ Research analysts said in a note.
The RBA is likely to cut the effective lower bound, where a central bank lowers short-term interest rates to zero, and unveil quantitative easing, ANZ Research analysts added.
In New Zealand, the government said it would pump $NZ$12.1 billion ($7.31 billion) into the economy to slow a contraction expected from the coronavirus outbreak.
RBA Monetary Policy Meeting Minutes
The RBA reiterated it stood ready to ease policy further in the face of the ‘unprecedented’ spread of the coronavirus, adding to speculation of aggressive stimulus this week to counter the widening economic fallout of the pandemic.
Minutes of the Reserve Bank of Australia’s (RBA) March meeting released on Tuesday showed policymakers were ready and willing to ease monetary conditions further to support the Australian economy.
Members also agreed it was important to “maintain contact’ given the speed of events, suggesting they would consider moving before the next scheduled policy meeting on April 7.
Speculators latched on to a pledge by the RBA this week that it will announce a new package of stimulus measures on Thursday, betting it would include an out-of-cycle cut to the cash rate to 0.25% together with unconventional policy measures to loosen financial conditions.
Analysts at ANZ Banking Group expect these steps to help lessen stress in funding markets.
“But it will not be a straightforward path and is predicted on what additional actions the RBA takes and a reduction in USD funding stress,” rates strategist Jack Chambers wrote in a note.
Chambers added that combined with the U.S. Federal Reserve’s injection of hundreds of billions of dollars of liquidity, there should be “some normalization” to the market conditions.
“Although, in this market it is hard to be definitive about anything.”
This article was originally posted on FX Empire
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