Most Asian currencies are gaining against the US Dollar while regional stocks are mixed after the Federal Reserve lowered US interest rates by 50-basis points. The Fed’s surprise move boosted Gold prices past $1640 while 10-year US Treasury yields briefly dipped below 0.95 percent before moderating from its record low.
The intra-meeting policy adjustment suggests to the markets that the coronavirus outbreak poses significant-enough risks to the US economy to trigger the world’s most influential central bank into rolling out supportive measures at haste. Investors now believe more Fed rate cuts are in store over the course of 2020, with the Fed funds futures now pointing to interest rates being lowered by roughly one more percentage point by year-end.
With the Dollar index (DXY) now testing the 97.0 support handle, the heightened prospects of more US policy easing over the coming months may prompt the DXY to explore more of its downside. As the Dollar stabilises to accommodate the updated forecasts surrounding the Fed’s policy trajectory, emerging-market currencies may find some reprieve over the near-term. However, the risks stemming from the coronavirus outbreak remains a dampener on assets across the emerging-markets complex, as investors sift through the hard data over the coming months to assess Covid-19’s toll on the global economy.
US economic performance key to limiting Dollar’s downside
The incoming US economic indicators are set to be coloured by the Fed’s latest move, with investors querying what Fed officials might have seen either in the data or heard from the business community to warrant the surprise rate cut. Although market participants harbor doubts over the effectiveness of lowering US interest rates so as to offset the economic toll from the coronavirus outbreak, the US economy still appears well-placed to bounce back compared to other major economies. An overt show of US economic resilience, beyond this week’s ISM manufacturing and non-farm payrolls prints, is needed to limit the Greenback’s downside.
Gold rides heightened prospects for more incoming global policy easing
The Fed has given Gold bulls a shot in the arm, as rising expectations for more coordinated policy easing by global central banks offer fresh legs to Bullion prices. Even if the human toll from the coronavirus outbreak were to stabilise over the immediate term, investors still have to wait to find out what the eventual global economic cost is over the coming months. Gold is expected to remain supported amid such drawn-out uncertainties.
OPEC+ supply cuts needed to shore up Oil prices
Should OPEC+ decide to trigger more supply cuts this week, that is likelier to build a stronger floor beneath Oil prices, as opposed to sending Brent soaring above $60/bbl. With demand-side uncertainties having already dragged Brent futures about 20 percent lower since the start of the year, while noting that the global PMI reading is currently at its lowest since 2009, Oil’s upside appears significantly capped amid persisting concerns over the coronavirus outbreak.