New Zealand Dollar: Central Bank Rate Cuts Buoy NZD Amid Coronavirus Fears

New Zealand Dollar: Central Bank Rate Cuts Buoy NZD Amid Coronavirus Fears

While Powell said the U.S. economy remains on solid footing with a strong labor market supporting household spending, but the broader spread of the virus is disrupting economic activity and "the risks to the United States outlook have changed materially".

It follows warnings that slowdown from the outbreak could tip countries into recession.

Shortly before the Fed announcement, finance chiefs from the Group of Seven industrialized nations issued a statement vowing to make a concerted response to address negative impacts on the global economy from the virus.

"The virus and the measures that are being taken to contain it will surely weigh on economic activity both here and overseas for some time", he added.

An emergency 50 basis point interest rate cut by the Fed on Tuesday had sent the dollar backwards against most Asian currencies and down to a five-month low of ¥106.84 (RM4.15). But we do believe that our action will provide a meaningful boost to the economy.”.

Powell didn't rule out further rate cuts, saying that the bank will "act as appropriate to support the economy".

The cut was not enough for Trump, who tweeted the central bank "must further ease and, most importantly, come into line with other countries/competitors".

Gold prices have tended to benefit from inter-meeting rate cuts by the Federal Reserve, gaining as much as 8% in the following 6-months. "Should ease and cut rate big", the president wrote on Tuesday, before the cut was announced.

Central banks around the world have been responding to the outbreak as well.

G-7 finance ministers also said that they were "ready to take actions, including fiscal measures where appropriate".

But many economists are concerned that a rate cut will do little to deal with a crisis that affects production rather than consumption.

The dollar struggled to make headway today, as very low USA yields and the prospect of even more monetary easing held back gains, while virus fears supported the safe-haven yen. Hence, he expects to see a couple of more rate cuts.

With cases of the illness surpassing 100,000 globally, and stock prices continuing their slide, prices of futures contracts tied to the Fed's key overnight lending rate reflected better-than-even bets the central bank will push its target rate down to the 0 to 0.25 per cent range by its April meeting.

But with investors flocking to assets seen as safe amid uncertainty over how much economic damage the coronavirus epidemic will cause, the yield on the benchmark 10-year Treasury note has already sunk to record lows of well below 1%.

"No economic data released over the last week would justify an unscheduled rate cut, let alone the largest rate cut since the financial crisis", Sukholitsky said.

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