- The Reserve Bank of Australia sends its cash rate to an all-time low
- Donald Trump says Fed had “it wrong from day one” & “should ease and cut-rate big”
- The promise of monetary stimulus from central banks had stocks market and bitcoin surging Monday but taking a rest today
The Reserve Bank of Australia has announced an emergency cut to interest rates, taking them to a record low.
The central bank announced on Tuesday that it was cutting its cash rate to 0.5% to mitigate the economic impact of the coronavirus. The bank’s governor, Philip Lowe said the epidemic has a “significant” hit on the country’s economy.
Within hours, the US President Donald Trump took to Twitter, saying higher rates put the US at a competitive disadvantage and that the Federal Reserve “should ease and cut-rate big.”
Australia’s Central Bank cut interest rates and stated it will most likely further ease in order to make up for China’s Coronavirus situation and slowdown. They reduced to 0.5%, a record low. Other countries are doing the same thing, if not more so. Our Federal Reserve has us….
— Donald J. Trump (@realDonaldTrump) March 3, 2020
The president has routinely criticized the Fed and its chairman, Jerome Powell. adding that this time as well that he “has called it wrong from day one. Sad!” Analyst Mati Greenspan said,
“So clearly, governments and banks have found a preventative measure to keep Coronavirus at bay and it involves… you guessed it. Massive injections of monetary stimulus.”
Analysts are expecting central banks to announce monetary stimulus to help with economic uncertainty. Goldman Sachs announced on Monday that the Fed is likely to cut 50 basis points in its March meeting. Today, G7 also issued the following statement,
“Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.”
Monetary Stimulus to Drive Stocks & Bitcoin Higher
This promise of stimulus already has the stock market surging. The Dow Jones Industrial Average jumped over 5% on Monday while Nasdaq and the S&P 500 each rose over 4%.
The Dow wrapped its strongest one-day day gains since 2009 after recording the biggest one-day loss last week.
US yields on course to 1%. Drops below 1.1% for first time in history. Hit All-time low at 1.03% this morning. pic.twitter.com/ZElgAMSp5q
— Holger Zschaepitz (@Schuldensuehner) March 2, 2020
“I don’t think (monetary policy) solves the problem … This particular one is both supply and demand, it will help but it won’t fix the problem,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab.
Meanwhile, Bitcoin (BTC) and the rest of the crypto market are recovering and “continue to move in a conspicuous correlation with the stock market and other risk assets,” notes Greenspan.
On Sunday, Bitcoin fell to nearly $8,400 only to jump to $8,920 on Monday. At the time of writing, BTC/USD has been trading at $8,750, down 0.50%.
Bitcoin has been “rejected at first resistance,” but “might see a retest at $8,650-8,700. If that holds, the price can continue towards $9,150. If not, retest of the lows again,” according to trader Crypto Michael.
After rebounding yesterday from its worst one-day decline of 4.5% on Friday, gold is also under pressure today. However, according to Lukman Otunuga, senior research analyst at FXTM, “the fundamentals remain in favour of the bulls.”
“The general unease and speculation around loose monetary policy should support appetite for gold, especially amid the potential for a weaker dollar.”
The same can turn out to be positive for bitcoin as well however, “BTC has been trading like a clear risk-on asset since last week. This has been surprising in some ways, unsurprising in others,” said economist and trader Alex Kruger.