The Australian dollar is lower against the US dollar on Monday afternoon with investors dumping the Australian currency in reaction to the potential damage being done to the Asian region by the spread of the coronavirus in China. Stock markets in China, where the coronavirus is concentrated, as well as Hong Kong, South Korea and Australia are closed. On the flipside the US dollar is winning thanks to its haven appeal in times of uncertainty.
AUD/USD was lower by 57 pips (-0.84%) to 0.6773 with a daily price range of 0.677 to 0.682 as of 2.30pm GMT. The exchange rate started the day well into the red and currently sits near its lows of the day as well as six-week lows.
As the second most liquid currency in the Asian region (after the Japanese yen) and especially given Australia’s close trading relationship China, the Aussie is being used as a proxy for China. Investors want to sell out of Chinese assets and those linked to China but that has been limited by the holiday closure of several stock markets.
The Australian currency had stabilised in the middle of last week when it appeared the coronavirus was under control. But fears that authorities might not have the virus as well contained as first suggested by the WHO has seen heavy selling since Thursday.
Of course investors want to see the virus contained and more deaths prevented but the measures taken by the Chinese government to prevent the spread is also likely to hit economic growth.
According to High Frequency Economics, a data analysis firm for institutional investors, “China generates almost one third of world GDP growth. A single percentage point off China’s GDP growth rate would reduce world GDP by the equivalent of $150 billion”
The dollar has appeal as a haven, but the United States also has a unique advantage when avoiding risks associated with China. Thanks to its new trade deal with China, the United States economy should be relatively insulated and is helping keep a floor under the US dollar.
