Fundamental Comment

Australian dollar drops as RBA minutes hint to policy easing

Australian dollar drops as RBA minutes hint to policy easing

The Australian dollar continued to trade lower versus its U.S. counterpart on Tuesday after the Reserve Bank of Australia’s minutes showed policymakers were ready to ease monetary policy further if needed.

The AUDUSD pair extended its drop for a fourth straight session to 0.6684, coming back to its latest bearish direction after taking a breather last week.

On February 7, the Aussie plunged to its lowest level since January 2019 at 0.6662 due to the negative impact of the coronavirus on China and therefore Australia.

The RBA decided to hold its cash rate at 0.75 percent, but hinted to the necessity of holding interest rates lower and readiness to ease monetary policy if required to counter the risks of the spread of the coronavirus.

The minutes stressed on the threats from the coronavirus, describing it as a ‘material risk’ to the Chinese economy and therefore to Australia but it said it was too early to judge its effect.

Futures are pricing a 73 percent chance the RBA would cut the cash rate in April to 0.50 percent to help the economy overcome the impact of the summer wildfires and the outbreak of the epidemic in its trading partner China.

The Australian dollar has been dragged lower by the drop in commodities prices, more specifically iron ore and copper, and the travel ban on Chinese tourists to Australia, in addition to the trade and education ties with China.

Last night, Apple Inc reignited fears in financial markets after mentioning that it would miss sales targets due to the impact of the coronavirus on the Chinese economy.

Asian shares were hit hard today, where the Hang Seng index plummeted 1.47%, Nikkei 225 index fell 1.4% and Kospi sagged 1.48 percent.

On the other hand, safe havens such as gold, Japanese yen and Swiss franc took the upper hand at the expense of high-yielding assets.

Later in the week, labor market data from Australia will probably weigh on the movements of the Aussie dollar.

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