USD/ZAR Rises, South Africa Enters Recession, AUD/USD Jumps on RBA Cut

MARKET DEVELOPMENT Analysis

G7 Finance Ministers and Central Bankers announced that they would close monitor the impact of the coronavirus and act if necessary. However, despite an initial dip on the lack of action, equity markets have extended its recovery as expectations for central bank stimulus remains rife. Although, this could work against equities amid greater likelihood for disappointment.

AUD: Despite having limited space for conventional monetary policy, the RBA cut interest rates by 25bps to 0.5% amid the expected negative growth impact from the coronavirus (mentioning the virus 9 times within the policy statement). In light of the aggressive repricing in money markets which had priced in a 25% possibility of a 50bps cut, the Australian Dollar rose on the back of the decision. Although, with the RBA now one cut away from the effective lower bound (ELB), QE in Australia is a material risk to the currency.

ZAR: The South African Rand is underperforming in the EM space after reports confirmed that South Africa fell into a recession during the fourth quarter. In turn, raises yet another concern for the country who will see its sovereign rating reviewed by Moody’s at the end of the month (Mar 27th), where a downgrade would place South African debt into junk status.

Source: Statistics South Africa

Source: DailyFX, Refinitiv

Economic Calendar (03/03/20)

Source: DailyFX,

WHAT’S DRIVING MARKETS TODAY

1. “G7 Meeting Update – Continued Vigilance, No Rate Cuts Yet” by Mahmoud Alkudsi, Market Analyst
2. “EUR/USD – Euro Rally May Just Be Getting Started vs US Dollar” by Paul Robinson, Currency Strategist
3. “DAX & FTSE 100 Outlook: Potential Coordinated G7 Action to Curb Coronavirus Impact” by Justin McQueen, Market Analyst

— Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX