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Fitch Ratings-Sydney-08 March 2020: Australian banks are likely to face further challenges to their earnings in 2020 due to cash rate cuts in response to an expected slowdown in global growth stemming from the COVID-19 outbreak, with risks intensifying if the outbreak is not effectively contained, Fitch Ratings says.

Key notes

New Zealand banks, which are dominated by the subsidiaries of major Australian banks, would feel similar effects if the Reserve Bank of New Zealand (RBNZ) opted to cut rates at its next meeting. The outbreak would increase the risk of a broad deterioration in asset quality for the banks, reflecting the slowing global economic growth, driven by China. China is the largest trading partner for both countries and Australia is New Zealand’s second-largest trading partner.

Full report

FX implications

In typical risk-off fashion, commodity-FX has taken a blow at the start of the week, with AUD/USD down -0.63% and NZD/USD -0.59% at the time of writing. News pertaining to the spread of the virus and will continue to cast a dark cloud over demand for commodities and global trade, directly impacting correlated currencies, such as AUD, NZD and CAD.