The investors rely on the U.S. Dollar and Japanese Yen as the safe-haven assets. The demand for these currencies is growing due to the China virus outbreak. As a result, the dollar, yen, and the Swiss franc increased on Monday, while the offshore yuan declined.
The Chinese currency began its downfall after the coronavirus spread from its 11-million city Wuhan. So far, it has killed 81 people, and almost 2,800 are infected. Traders prefer to take a risk-off approach while the danger of pandemic remains.
So far, Japanese yen benefited most from such a policy, growing to 0.3%. The dollar index also rose to 0.09%. Juan Perez, the senior foreign exchange trader and strategist from Tempus noted that the dollar generally does strengthen as a result of anything that seems like it has the potential for physical chaos.
The analysts think that if the situation doesn’t improve, the dollar will maintain its superior position. But if the authorities manage to contain the virus outbreak or discover the cure, then all the bets are off. The dollar most assuredly will lose its safe-haven momentum. As the Chinese Premier Li Keqiang promised to “inspect and direct” efforts to control an outbreak in Wuhan, this is a real possibility.
The Australian dollar, which has links to the Chinese economy, dropped to its lowest level since December.
Financial markets closed for holidays in China, Australia, Singapore, and Hong Kong. Investors say that low liquidity worsens the situation further. The Chinese yuan collapsed from its five-month high, with the U.S. dollar gaining more than 2% against it. While the Australian dollar declined by 0.88% to $0.677.
Meanwhile, the euro lost against the yen with 0.3% to 120.08, reaching its two-month low. It also dropped against the dollar at $1.102, after the Ifo institute said that German business morale deteriorated unexpectedly in January.