Terrible Chinese Manufacturing Data Sees AUD and NZD Open Sharply Lower

The AUDUSD opens sharply lower at 0.6465 and the NZDUSD opens sharply lower at 0.6208 this morning.

Both AUD and NZD open lower in response to terrible Chinese manufacturing data, released Saturday afternoon. This has raised fears China’s economy could be heading for a worse-than-expected 1Q contraction due to the coronavirus outbreak.

Chinese manufacturing PMI (purchasing managers’ index) plunged to 35.7 in February from 50 in January, compared with lower expectations of 45.1. Some market commentators are now forecasting Chinese 1Q GDP to shrink by as much as 2.5%.

Commodity prices suffered sharp declines on concern the spread of the coronavirus will tip the global economy into a recession.

Goldman Sachs said in a report Friday that global GDP will shrink in the first 2 quarters of 2020, before rebounding in the second half of the year.

The US Federal Reserve Chair Jerome Powell said on Friday the central bank will “act as appropriate” to support the economy in the face of risks caused by the coronavirus outbreak. The markets have now priced in nearly four 0.25% rates cuts from the Fed over the next 12 months as the drumbeat of bad news surrounding the virus continues.

The Reserve Bank of Australia is expected to cut interest rates by 0.25% tomorrow, to a new record low of 0.50%. Needless to say, this does not leave many bullets in the chamber before more unconventional policy responses will be required.

The markets have priced in two 0.25% interest rate cuts by the Reserve Bank of New Zealand over the next 6 months. If seen, this would take the OCR to 0.25%!

The World Health Organization's Director-General Tedros Adhanom Ghebreyesus said on Sunday "global markets… should calm down and try to see the reality." He said the world still has a chance to contain the rapid spread of the virus, but that we should also prepare for the worst.

ANZ Job Ads and Australian Company Operating profits hit the tapes at this morning and the RBA has a Cash Rate decision Tuesday.

NZ 4Q Overseas Trade Index is released this morning, in what is a light NZ data week.

Global equity markets ended another day in the red - Dow -1.4%, S&P 500 -0.8%, FTSE -3.2%, DAX -3.9%, CAC -3.4%, Nikkei -3.7%, Shanghai -3.8%.

Gold prices plunged 3.3% to USD$1,586 an ounce. WTI Crude Oil prices were slammed down 3.0% to US$48.73 per barrel.

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