With the recent outbreak of China’s coronavirus, traders are searching for clues as to how the markets reacted the last time such an event happened. This helps analysts at the Australia and New Zealand Banking Group (ANZ) to come up with the report mentioning how the Australia dollar (AUD) reacted to the World Health Organization’s (WHO) statement on the Severe Acute Respiratory Syndrome (SARS) virus.
Key quotes
The outbreak of a coronavirus strain in the Chinese city of Wuhan has prompted a number of questions about the impact of the SARS virus on Australia in 2003.
In undertaking this exercise, we are in no way implying that we think the Wuhan outbreak will unfold in anything like the same manner as SARS.
The World Health Organisation (WHO) issued a SARS alert in March 2003. In looking through the rate charts for that year, what stands out is the sell-off that took place in a week or two immediately following.
For a market that was used to rates being a safe-haven from deflationary shocks, this seems difficult to understand.
During most of the period that SARS was in focus, AUD rates tracked the path taken by US rates.
The divergence between AUD and USD rates began in earnest in the latter part of 2003, as it becomes clear that the RBA was likely to return to the tightening cycle it started in 2002.
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