What you need to know for the open: Coronavirus to keep markets on edge
The coronavirus is causing some stall in FX markets and Friday's close leaves a consolidative tone for today's open ahead of key risk events for the Aussie trading as a proxy to the coronavirus driver. The recent changes to the methodology for tracking cases caused widespread uncertainty in markets last week.
The latest on the virus has the total number of coronavirus cases in mainland China has reached 68,500, and the total deaths has reached 1,665, according to the latest statistics from China’s National Health Commission on Sunday. China’s National Health Commission reported that there were 2,009 new confirmed cases of the coronavirus and 142 additional deaths as of Feb. 15.
Markets appear to be expecting a short-lived economic impact, but we are very much in “wait-and-see” mode. This weekend, China announced increased fiscal spending to help support the economy, with corporate tax cuts on the agenda which may help to buoy markets in the open this week. Meanwhile, the IMF emphasised the importance of fiscal stimulus and structural reforms to boost what was already an anaemic outlook for global growth. The uncertainty around the coronavirus could continue to carry more weight in markets in a relatively scares data event calendar in the week ahead. For a quick recap of the closing events for Friday, see here: Forex Today: Coronavirus weight on growth keeping investors on the back foot
Key events for the week ahead
The immediate risk for this week falls on the Australian calendar with the Reserve Bank of Australia's minutes grabbing the market's attention considering that the RBA has displayed a preference to more clearly outline its thinking via Minutes than via the monthly statement. The wave of communication post the 4th Feb meeting reinforced the bar to easing is high. However, we will look for any signs that would force the RBA to reconsider its stance. In addition to the minutes this week, traders will look to the Aussie jobs report: "Assuming the unemployment rate rises 0.1%pts per month, the earliest the RBA would cut is in June assuming a 5.5% print in May is considered a material deterioration. We have headline at +12k, unemployment rate at 5.2% and part rate unchanged @ 66%. There is likely to be greater uncertainty for the Jan print," analysts at TD Securities explained.
Another crucial event will come with the Federal Reserve's minutes, although there are not many expectations of new insights here following what the Fed's chair, Jerome Powell's recent testimony. "However, they will likely include an update on the review being conducted by the Fed. We expect the review to result in the adoption of some form of average inflation targeting, which is dovish given sub 2% inflation," analysts at TD Securities argued.
In other G10's, the UK's Consumer Price Index and Manufacturing PMIs will be a focus. However, the Bank of England's estimate of 1.8% CPI YoY is ambitious and markets will be looking to the PMIs for clues in how not only how UK/EU trade talk sentiment is affecting, but also how the coronavirus is impacting. In Canada, we have the Consumer Price Index and Retails Sales with the markets looking for improvements to bolster the economic outlook following a muted performance through 2019.
Price analysis in focus
AUD/USD Technical Analysis: Bulls advancing in bullish descending triangle within weekly support