- AUD outperforms rivals after RBA's hawkish rate update.

- But 01:30 speech could see guidance qualifiers emerge.

- Any walk-back of rate guidance would likely weigh on AUD.

- Which is in danger of becoming expensive, Westpac says.

- And Lowe's speech will land half hour ahead of virus data.

- China to update on spread of deadly coronavirus at 02:00.

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The Australian Dollar ended the Tuesday session as the best performing major currency after the Reserve Bank of Australia (RBA) indicated further cuts to the cash rate are unlikely in the short-term, although Westpac says the rally has left it at risk of becoming expensive.

Australia's Dollar gained over all major rivals as investors further priced-out the prospect of an imminent RBA rate cut after the bank left borrowing costs unchanged at 0.75% for the month and suggested that it won't be easily deterred from its on-hold position by neither the spread of China's new coronavirus nor any other short-term uncertainties.

The bank told markets the three rate cuts it announced in 2019 are doing as they were intended by stimulating a gentle increase in activity at the local level and that this should lift GDP growth to a three year high in 2020. Governor Philip Lowe came across unmoved by the risk that bushfires pose to the domestic economy and that coronavirus poses to the world's second largest economy and Australia's largest trading partner.

"The message was more hawkish than expected," says Richard Franulovich, head of FX strategy at Westpac. "That has seen 3yr futures prices as much as 6 ticks lower than their pre-meeting level in the 15 minutes post the announcement. Whether or not that correction continues in the near term will depend on the more nuanced and in-depth message that Dr Lowe will provide in tomorrow’s key speech, but also global market sentiment."

Above: AUD/USD rate shown at weekly intervals.

Pricing in the overnight-index-swap market has shifted in the wake of the RBA's decision to imply that a rate cut in March and subsequent months is now less likely than before, although Governor Lowe will speak at the National Press Club in Sydney at 01:30 Wednesday morning and it wouldn't be unprecedented for him to append the RBA's Tuesday guidance with a number of qualifiers that might then serve to cap the ongoing rally in the Australian Dollar.

That rally has pulled the AUD/USD rate up from near its decade-long-low set last year while pushing the Pound-to-Aussie rate further back from near its post-referendum highs at a time when the currently-supportive global environment is vulnerable to a turn for the worse without much warning.

And Westpac's Franulovich says that even without such factors at play, the Aussie would now be at risk of becoming expensive because recent falls in commodity prices have reduced its 'fair value'.

"The more upbeat views expressed by the RBA in today’s Policy Decision has lifted the A$ back above 0.6700 to a high of 0.6725 so far. The move could extend slightly further towards 0.6750, however, we doubt that we will see much further strength near term. Indeed, much above 0.6775/ 0.68, our fair value methodology suggests the A$ would be expensive given the sharp drop in commodity prices seen so far this year," says Franulovich, who estimates 'fair value' for the AUD/USD rate to be around 0.6525.

Above: Westpac graph showing AUD/USD rate with estimate fair value range.

Markets are hoping the coronavirus epidemic in China will prove short-lived and that the subsequent return to normal will be quick, which are sentiments that might have been encouraged overnight by the latest declarations from the National Health Commission. Infections were at 20,438 as of midnight Monday, up from 17,205 the previous day, while the number of fatalities rose from 361 to 425, marking a slower rate of increase than that observed in prior days.

Coronavirus has brought China's economy to a standstill and there's still uncertainty about how long it will be before authorities have a proper grip on the situation although markets have calmed since the Peoples' Bank of China (PBOC) injected trillions of Yuan into the financial system to ensure adequate liquidity as investors returned from an extended New Year holiday.

PBoC intervention has helped keep the Yuan stable while the ebbing spread of the infection has incited hope that the worst might now be over, but stability could give way to a sell-off if the infection's spread accelerates again at any point. And China's National Health Commission is set to update the world with its latest declarations at 02:00 and any reversal of the slowing in the infection's spread would likely hurt the Aussie, which will also be responding to Lowe's speech that's due half hour before those numbers.

"The coronavirus and the bushfires are expected to temporarily weigh on domestic growth but the RBA remains confident growth will pick up towards 3% next year from around 2.75% this year," says Lee Hardman, a currency analyst at MUFG. "Nevertheless, we still believe risks remain skewed to the downside for the Aussie until there is more clarity over the potential negative impact on growth in China and globally from the coronavirus outbreak."

Above: AUD/USD rate shown at weekly intervals.