The Australian Dollar has plunged 3% in trading on Thursday versus US Dollar, as investors flee riskier assets and currencies, and seek out safe havens.
At 15:00 UTC, AUD/USD is trading -198 points lower (-3%) at US$0.6280 with few signs of the selloff easing.
Australian Dollar Slumps
As a commodity currency, the Australian dollar is considered a risky currency. Today investors are moving out of risk at a frightening rate. A series of events surrounding coronavirus has seen risk sentiment collapse, dragging riskier assets and currencies, such as the Australian Dollar lower.
Firstly, the World Health Organization (WHO) declared the coronavirus a pandemic. This raised the level of fear in the market. Whilst there is no direct change to policy response, given that each country sets its own response, the new title added an extra layer of fear
Secondly, President Trump announced a travel ban and several other measures to support individuals and smaller businesses. However, he failed to impress investors, instead injecting more panic into the markets. Interestingly there was no mention of the payroll tax relief measure that was floated on Monday. The assumption is that this is still making its way through Congress.
Thirdly, the European Central Bank surprised the markets by not cutting interest rates. Market participants were broadly expecting the ECB to cut interest rates by 10 basis points. Instead the ECB decided to adopt a more targeted approach with smaller actions, such as increasing bond purchases, but no rate cut.
As fear levels ratcheted higher, stock markets across the globe tumbled lower. The US stock market plunged over 7%, at the time of writing, taking it through a circuit breaker level. This is a level when trading pauses for 15 minutes in an attempt to stabilise the market.
Safe Haven Dollar
Thursday is turning out to be become of the darkest days in the financial markets on record. Whilst investors are turning away from the Australian Dollar, they are turning towards the US Dollar for its safe haven properties. This rally in the dollar could be short lived with the Fed expected to cut rates again next week.