Dollar at two-month high, Aussie weak as virus anxiety spreads

TOKYO: The dollar held near a two-month high against a basket of major currencies while the Australian dollar and the yuan were under pressure on Thursday as investors tried to shield themselves from assets that could be hit by China’s virus epidemic. The U.S. Federal Reserve, while keeping interest rates on hold as expected on Wednesday, also cited the virus as a source of uncertainty for the economic outlook.
As the new pneumonia-like disease spread quickly in China, the dollar is emerging as an ultimate safe-haven destination.
The dollar is the best performing currency among G10 currencies in January, with the dollar index =USD rising 1.6% so far this month to hit a two-month high.
It last stood at 98.033, flat on the day but not far from Wednesday’s two-month high of 98.026.
The yen and the Swiss franc, traditional safe-haven currencies, ranked a close second and third.
The yen firmed 0.1% to 108.90 yen per dollar JPY=, edging close to a three-week high of 108.73 touched last week.
The Japanese currency has fallen 0.3% against the dollar so far this month but risen against most others, adding 1.6% versus the euro EURJPY= and 3.9% on the Australian dollar AUDJPY=R.
The Swiss franc CHF= changed hands at 0.9729 franc per dollar, flat on the day and down 0.5% this month but hit a 32-month high against the euro EURCHF=R earlier this week.
“While it is highly uncertain how much the disease will spread and how hard it will hit the economy, downgrades to the Chinese economy look inevitable,” said Minori Uchida, chief currency analyst at MUFG Bank.
Indeed, a Chinese government economist said China’s economic growth may drop to 5% or even lower due to the coronavirus outbreak, possibly pushing policymakers into introduce more stimulus measures.
That would deal a severe blow to other economies that rely heavily on Chinese demand.
The Australian dollar fell more than 0.2% to $0.6732 AUD=D4, its lowest level since mid-October.
The Aussie has lost 3.9% so far this month, the second worst performing currency in the G10, behind only a 4.3% fall in the Norwegian crown NOK=, which has been hit by falls in oil prices.
The euro stood at $1.1009 EUR=, having touched a two-month low of $1.0992 in U.S. trade on Wednesday.
The offshore yuan dipped , trading at 6.9730 yuan per dollar CNH=, above the one-month low of 6.9900 touched on Monday. Markets in China will remain shut this week.
Chinese health authorities said there were 7,711 confirmed cases of infection as of the end of Wednesday, with the death toll rising to 170, an increase of 38 from the previous day.
In the United States, the latest economic data was mixed.
New orders for U.S.-made capital goods dropped by the most in eight months in December and shipments were weak, although consumer confidence surged to a five-month high.
U.S. bond prices gained, with the 10-year Treasuries yield falling to 3 1/2-month low of 1.569% US10YT=RR, getting a boost from not only wariness about the coronavirus but also comments from Federal Reserve Jerome that were perceived to be dovish.
“Overall, the Fed seems keen to cut rates if needed while nothing in Powell’s comments pointed to a chance of a rate hike this year,” said Naoya Oshikubo, senior manager of research at Mitsui Sumitomo Trust Asset Management.
U.S. money markets are pricing in one rate cut by the third quarter, though the chance of a near-term move is seen slim.

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