The Australian and New Zealand dollars lay bloodied at 11-year lows on Friday as panicked investors fled risk in all forms and dumped currencies with exposure to global trade or commodities. As the spread of the coronavirus disrupts travel worldwide and almost shuts down some countries, markets have increasingly priced in the inevitability of a global recession.
Rate cuts and liquidity injections by central banks have failed to calm the mood, as have pledges of fiscal stimulus by many governments. That has led to a rush to ensure US dollar funding as the world's most liquid currency with the deepest debt markets.
"The exit from risk assets has seen an increase in demand for US dollars, and wild moves in currencies," said Rodrigo Catril, a senior FX strategist at NAB. "We are certainly in the midst of a severe global downturn and more drastic policy action should be expected," he added. "Risk and growth sensitive currencies such as the AUD and NZD have room to trade lower. For the AUD, a move sub $0.6000 can no longer be ruled out."
The Aussie seemed to be heading there in a hurry having shed 3.9% overnight in the largest one-day drop since mid-2010. It traded as low as $0.62145 at one point, depths last visited in late 2008.
It was last hanging on grimly at $0.6295, with the next major bear targets being troughs from October and November 2008 at $0.6075 and $0.6007. The kiwi dollar was huddled at $0.6133 having lost 2.8% overnight in the largest daily drop since 2015. It has some support at $0.6075 and around $0.6000. Yields on 10-year bonds did get as low as 0.555% early in the week, but have since risen back to 0.83% amid talk stressed investors globally were having to sell profitable assets to raise the cash to cover losses elsewhere. Three-year bond futures eased 4.5 ticks on Friday to 99.565, just off an all-time peak of 99.675.
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