The pandemic is gathering momentum is some vulnerable countries, including India and Brazil, while a second wave hits the USA, Australia, China and Spain. This is not unexpected, but is a big threat to economic re-opening and progress, thus interrupting big rallies in global equity markets. The impact on global economies is dramatic and none more so, than growth numbers and inflation. US GDP contracted a shocking 32.9% for the June Quarter!
The Fed left rates unchanged and assured all that the QE programs would continue as required. The economic outlook was more positive than the last meeting but still had some dire economic warnings. The USD continued to head south, with the EUR surging to 1.1840, while the GBP rallied to 1.3080. German GDP also suffered significant losses, contracting more than 10% for the quarter and 11.7% per annum.
The softer reserve allowed the trade exposed currencies to hold elevated levels, with the AUD trading 0.7170, while the NZD held 0.6670. The resilience of these commodity currencies will be tested by deteriorating Chinese relations with global powers, which appears to be deteriorating, NZ Business Confidence is a key local indicator and showed signs of improvement, although dangerously negative.
China geo-politics and the virus will continue impact global economies and drive currencies.