The Australian dollar bounced from an 11-year low on Tuesday, clawing back some of the heavy losses from recent sessions as investors took some solace from a dip in the coronavirus infection rate amid growing U.S. rate cut expectations.
The Australian dollar AUD=D4 was last 0.2% higher at $0.6619, not far from Monday's $0.6581, which was the lowest since March 2009.
The Aussie, a liquid proxy for risk, has fallen more than 1% so far this month on top of a steep 4.7% in January on fears a fast-spreading coronavirus outbreak could cripple global supply chains and wreak far greater economic damage than first thought.
The New Zealand dollar NZD=D4 added 0.2% to $0.6354 after hitting a four-month trough of $0.6304 on Monday. The kiwi has slid 1.7% this month, piling on losses from January when it declined nearly 4%.
Despite signs of relief across markets, analysts cautioned against reading too much into Tuesday's moves, saying risks still persisted.
"Perhaps the slower rate of new COVID-19 infections reported by Korea and declining rate of infection from China were the drivers. Having said that, situation remains fluid," said Citi economist Johanna Chua.
"While it is heartening to see some relief, price action will likely remain hostage to news flow for now."
The coronavirus death toll climbed to seven in Italy on Monday and several Middle East countries were dealing with their first infections, feeding worries it could turn into a pandemic.
Some analysts said Tuesday's bounce was a result of short covering and buying usually witnessed after heavy falls.
Others cited a Wall Street Journal report on a possible vaccine as helping sentiment, although human tests of the drug might not start until the end of April.
Yet others pointed to rising expectations central banks would have to ride to the rescue with new stimulus.
"It's difficult to know what's really driving markets. It's not risk-on, I don't think so," said Ray Attrill, head of forex strategy at National Australia Bank.
"The only thing I'd say is because of deepening concerns of the impact of the virus spreading outside China market expectations have increased for rate cuts by the U.S. Federal Reserve. Ultimately, that would be a supportive influence for risk assets."
Futures for the Federal Reserve funds rate
0#FF: have surged in the last few days to price in a 50-50 chance of a quarter-point rate cut as early as April. In all, they imply more than 50 basis points of reductions by year end.In Australia, a full 25 basis point cut to 0.5% is priced in the second half of the year.
0#YIB: The rush to bonds left yields on New Zealand government bonds about half a tick lower.
Australian government bond futures were mixed, with the three-year bond contract YTTc1 down half a tick at 99.370. The 10-year contract YTCc1 was flat at 99.085.
