AUSTRALIAN DOLLER PLUMMETS TO 18-YEAR LOW IN THE HISTORY
The Aussie dollar has dropped to 55 US cents – the lowest since 2002 – as the horrific global growth outlook combined with an emergency rate cut takes its toll.
The Australian dollar plunged to a 18-year low of 55 US cents as the global economic outlook crumbles under the spread of the deadly coronavirus.
The widely expected emergency interest rate cut to 0.25 per cent from the Reserve Bank of Australia was priced in as the currency hangs tentatively waiting on details of quantitative easing – effectively encouraging consumer spending by printing more money and pumping it into the economy.
The Aussie was buying just 55.10 US cents shortly after lunch, the weakest since 2002.
“The dollar is seen as a proxy for global growth,” Westpac senior currency strategist Sean Callow told news.com.au.
He said most major currencies have been weakened by the continual spread of the pandemic as another 475 deaths were confirmed overnight in Italy, creating a “horrible risk environment” for investors as travel restrictions amplify.
“The Aussie seems to get over punished when the global economic outlook deteriorates,” Mr Callow said.
RBA CUTS RATE TO 0.25 PER CENT
The central bank followed through with the widely expected move to slash interest rates to 0.25 per cent this afternoon two weeks ahead of the scheduled meeting on the first Tuesday of April.
It’s the first time it has been announced outside a regular meeting since 1997, and is a glaring sign of just how severe the situation is becoming.
Governor Philip Lowe also announced other measures – including quantitative easing – which are designed to make sure credit remains available to individuals and businesses.
“The coronavirus is first and foremost a public health issue, but it is also having a very major impact on the economy and the financial system,” he said in a statement this afternoon.
“As the virus has spread, countries have restricted the movement of people across borders and have implemented social distancing measures, including restricting movements within countries and within cities.
“The result has been major disruptions to economic activity across the world. This is likely to remain the case for some time yet as efforts continue to contain the virus.
“Financial market volatility has been very high. Equity prices have experienced large declines. Government bond yields have declined to historic lows.
“However, the functioning of major government bond markets has been impaired, which has disrupted other markets given their important role as a financial benchmark. Funding markets are open to only the highest quality borrowers.
“The primary response to the virus is to manage the health of the population, but other arms of policy, including monetary and fiscal policy, play an important role in reducing the economic and financial disruption resulting from the virus.”