Forex Today: Central Banks in step, BoC cuts 50bps, RBNZ next?

Ross J Burland FXStreet

Here's what you need to know for Thursday 5th March:

It was the second 1000+ point tally for the DJIA in its 124-year history on Wednesday as markets went bargain hunting following the promising efforts by global authorities to lift sentiment in financial markets and contain the spread of the coronavirus. In addition to Tuesday's emergency rate cut from the Federal Reserve of 50 basis points, the Bank of Canada slashed rates by 50bps, and US lawmakers decided upon an $8 billion response to the coronavirus, approving more than $3 billion for developing treatments for COVID-19 and $2.2 billion for containment. Consequently, the DJIA climbed 1,171 points, or 4.5%, to end around 27,090, pulling back all of the 800 points lost in the prior session. Also, US data was rosy and Biden's lead over Democratic rival Bernie Sanders boosted sentiment.

Key events

Bank of Canada slashed rates by 50bp rate cut, beating expectations; similarly to the Fed's message, the central bank stands ready to adjust policy further if required.
US Feb ISM rose to 57.3 vs 55.5, 89% of industries reported growth.
IMF made USD50bn virus interest-free loan facility available for poor countries.
US lawmakers decided upon an $8 billion response to the coronavirus, approving more than $3 billion for developing treatments for COVID-19 and $2.2 billion for containment.
Incoming BoE Governor, Andrew Bailey, said he expects to have to provide supply-chain finance; will co-ordinate action with the Treasury.
US 10 year bond yields settling below 1%.

FX action and forecasts

Commodity complex

Commodities were on the front foot. Industrial metals were broadly higher, with copper and nickel leading gains. Copper was bid from a low of 2.5690-2.5990. Oil was also eeking out a gain, climbing from a low of 46.67 to a high of 48.39. Iron ore futures also pushed higher. Gold and other precious metals were relatively unchanged.

Aussie trade balance and RBNZ up next

Following the three central banks cutting rates this week on the dollar bloc, the Reserve Bank fo New Zealand is in the firing line for a cut as well. "We changed our forecast to a 50bp cut on Monday, and the coordinated global response backs that, and the BoC’s move last night will only cement market expectation," analysts at ANZ Bank forecasted.

Meanwhile, the Australian Trade Balance is on the hit list for today's Asian session. Preview to follow:

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

AUD/USD holds firm near 0.7000 after Chinese inflation, trade data

AUD/USD stays firm near 0.7000 in Wednesday’s Asian session, picking up some bids after China's mixed inflation and upbeat trade data. CPI rose less than expected in September, while PPI inflation picked up. Meanwhile, the Chinese trade surplus unexpectedly widened in September. The pair remains underpinned by a broadly subdued US Dollar, despite the Middle East escalation, as focus remains on US CPI data.

USD/JPY consolidates near 158.50; looks to US CPI for fresh impetus

USD/JPY stays range-bound near 158.50 in the Asian session on Wednesday, with looming intervention risks supporting the Japanese Yen and capping upside amid a softer US Dollar. However, geopolitical uncertainties act as a tailwind for the safe-haven USD and the pair. Traders also seem hesitant ahead of the release of the latest US inflation figures.

Gold looks to $4100 and US CPI inflation amid geopolitical risks

Gold falls for the third straight day on Wednesday, as the recent recovery falters ahead of US inflation. US Dollar pauses correction amid rising Oil prices and stabilizing US Treasury bond yields. The daily bearish RSI remains a headwind for Gold buyers, with $4,100 seen at risk.

Strategy bitcoin buying model faces scrutiny as STRC costs climb

Strategy’s (MSTR) STRC financing strategy increased its Bitcoin (BTC) holdings in H1, but made its capital structure more expensive, prompting an examination of its effectiveness, according to a Tuesday report by K33. STRC recovered close to its $100 par value, closing at $99.90 after an extended period of heavy buybacks.

What happens after a US Treasury market crash

The global bond market is under severe pressure as US Treasury yields reach multi-decade highs, driven by persistent inflation risk, heavy government and corporate debt issuance, and expanding term premiums. Higher yields raise borrowing costs and tighten financial conditions, but a severe bond selloff can ultimately shift investor focus from inflation to growth and financial stability.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?