Yuan, Australian dollar struggle as investors feared the impact of coronavirus on Chinese economy

by Jonathan Adams

The yuan dipped and the Australian dollar hit a six-week low as investors feared the impact of a new coronavirus on Chinese economy which is already slowing on U.S.-China trade war

The yuan dipped and the Australian dollar hit a six-week low on Wednesday as investors feared the outbreak of a new coronavirus in China could create more headaches for the Chinese economy, which is already slowing because of the U.S.-China trade war.

The virus, which causes a type of pneumonia, has spread to cities including Beijing and Shanghai as the number of patients in China more than tripled. More cases were also reported outside China, including the United States.

The yuan was steady after dipping earlier. It fell about 0.55% on Tuesday, its biggest decline in almost five months, in the onshore trade. It last stood at 6.9063 per dollar CNY=CFXS, almost flat on the day.

The Australian dollar, often used as a proxy bet on the Chinese economy, fell to as low as $0.6827, a trough last seen in mid-December, and last stood at $0.6837, down 0.13%.

The concerns surrounding the little-known virus propped up the safe-haven yen, which was firm at 109.98 yen JPY=, up from Tuesday’s low of 110.23.

The newly-found virus evoked memories of the 2002/03 outbreak of Severe Acute Respiratory Syndrome (SARS) in southern China, which killed nearly 800 people globally and led to a sharp downturn in tourism in Asia.

Some say the impact could be felt more severely this time given the Chinese economy is now several times larger than it was in 2002-03.

On the other hand, with limited information available on the extent of the pandemic, market participants had little for now.

This is certainly something companies need to think about for their contingency planning. But for financial markets, there isn’t much to make a thorough case for trading in either direction given lack of further information, said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

Tohru Sasaki, head of Japan market research at JPMorgan, said that while the SARS outbreak caused a massive economic downturn in Hong Kong and Singapore for about eight weeks through a drop in tourism, the pandemic had limited impact on supply chains in Asia.

If the latest virus reaches a similar magnitude, some economies such as Thailand, Singapore and Malaysia could be negatively affected by a drop in tourism. But its long-term impact on the global economy and the currency market will be limited, he said.

Sterling traded at $1.3040 GBP=D4, having gained a bit on Tuesday after data showed the British economy created jobs at its strongest rate in nearly a year in the three months to November.

The strong data slightly dented expectations of an interest rate cut by the Bank of England at the end of this month, though markets are still pricing in about a 60% chance of a 0.25 percentage point cut.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Related News

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Know more