New Zealand has reported the first case of a coronavirus in the country, which seems to frighten investors who may have panicked selling the New Zealand currency. The NZD/USD exchange rate fell by over 1% along with the increase in the chances of interest rate cuts by the RBNZ (Reserve Bank of New Zealand).
The NZD/USD exchange rate has fallen to the lowest level in 5 months, i.e. from October 2019, and throughout the whole of February, the decline is approaching 4 percent. At the last meeting, the RBNZ noted that the chances for further interest rate cuts are not great, but it was added that the time may come to adjust monetary policy if the impact of the epidemic threatens the economy. At that time, it was also found that the coronavirus epidemic represented a lower risk and its impact would be short-lived, with most of the effects taking place in the first half of the year. Observing what is currently happening in the world, it could be assumed that this view may change, hence the interest rate market is pricing in a 25bp cut in May.
According to Bloomberg, the first case of coronavirus after a diagnosis of a person who recently returned from Iran was confirmed in NZ. Therefore, the country imposed travel restrictions on arrivals from Iran, adding restrictions for China, which have been in force since the beginning of February.
According to ANZ (Australia and New Zealand Banking Group) forecasts, the NZD/USD and AUD/USD rates may fall to 0.55 and 0.58, respectively, if emerging news still indicate a possible pandemic. ANZ adds that in a positive scenario, if the epidemic can be stopped soon, global economic growth is likely to rebound in the second quarter, which could potentially support AUD and NZD.
Meanwhile, fears of a slowdown in GDP along with more US companies announcements of lower profit outlook by the coronavirus hit Wall Street. During the session in New York, the Dow Jones index recorded the largest point decline in history, and the main indexes lost more than 4 percent. Futures contracts indicate another opening below yesterday's close is possible today, and fear and panic do not leave investors.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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