March 2, 2020 / 2:57 AM / a month ago

Australia, NZ dollars choppy as market goes all in on global rate cuts

(Adds analyst reaction, updates prices)

* Market rushes to price in RBA rate cut this week

* Bond yields hit record lows amid talk of global easing

* Aussie bounces from 11-year trough, outlook uncertain

By Wayne Cole

SYDNEY, March 2 (Reuters) - The Australian dollar edged away from 11-year lows on Monday, as speculation mounted the world’s major central banks were planning a coordinated barrage of stimulus aimed at offsetting the economic impact of the coronavirus.

The Aussie had fallen sharply late Friday as investors piled into wagers the Reserve Bank of Australia (RBA) would cut rates at its monthly policy meeting on Tuesday.

Yet the prospect of a global response offered some support given Australia’s reliance on tourism and resource exports to drive domestic growth.

Federal Reserve Chair Jerome Powell surprised many on Friday by issuing a statement that the bank was ready to support the U.S. economy, and the Bank of Japan said much the same on Monday.

“This statement is likely to be seen as a “call to action” for other central banks around the world,” said Bill Evans, chief economist at Westpac.

“We now expect the RBA to cut the cash rate to 0.5% at tomorrow’s meeting,” he added. “That is likely to be followed up by a second cut to 0.25% at the April board meeting.”

A Reuters poll last week had found few analysts expected a move so soon, but the sheer scale of share market losses and dismal data out of China changed all that. [AU/INT}

Two surveys from China showed factory activity contracted at the fastest pace ever in February.

Futures were now implying a 100% chance of a quarter-point cut this week, compared with just 18% last week.

A further move to 0.25% was fully priced in by June, and analysts were pondering quantitative easing steps such as the central bank buying government bonds.

All of which left the Aussie bruised at $0.6540, having lost 1.9% last week, though it was at least up from a deep low at $0.6435. There is still little in the way of chart support until a $0.6280 trough from early 2009.

The New Zealand dollar steadied at $0.6244, having shed 1.6% last week to touch lows last seen in 2009 at $0.6180.

“The RBA looks like it will join what seems to be a coordinated global easing effort,” said Tapas Strickland, director of economics at NAB.

“With policy rates so low, thoughts will now turn to how likely QE and negative rates are globally and also in Australia,” he added. “The clear risk of COVID-19 spilling over to consumer and business confidence is very real and looks to be being realised.”

Investors were likewise wagering the Reserve Bank of New Zealand (RBNZ) would be forced into cutting, even though it recently dropped its easing bias and turned neutral.

The market is more than fully priced for a quarter-point cut to 0.75% at the next meeting on March 25.

Fed funds are pricing in almost 44 basis points of U.S. cuts this month, and 90 basis points by November.

Australian bond yields duly dropped to all-time lows with the 10-year down at 0.763%.

The three-year bond future surged to a record peak on Monday and was last up 9 ticks at 99.585. (Reporting by Wayne Cole; Editing by Jacqueline Wong)

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