SINGAPORE, 24 February 2020 – Asian currencies dropped on Monday as the rapid spread of Covid-19 outside China drove fears of a pandemic and sent investors flocking to gold and the dollar for safety.
Italy, South Korea and Iran posted a significant increase in infections over the weekend. South Korea now has more than 760 cases while Italy has more than 150 and Iran 43 cases.
The World Health Organization said it was worried about the growing number without any clear link to the epicentre of the outbreak in China.
“The omens are not particularly good today. The presumption was that we would see intermediate supply chains quickly reconnected and I think the market’s had to go through a period of questioning that logic.”
Ray Attrill, head of FX strategy at National Australia Bank in Sydney
The Chinese, Australian, New Zealand, Singapore, and Taiwan currencies were all on the back foot, with the Aussie carving a fresh 11-year low in early trade.
Political turmoil in Malaysia added pressure to the ringgit and sent it 0.6% lower to its weakest since September.
Yet risk aversion, which also saw stocks tumble and gold and bonds rise, offered surprisingly little support to the yen.
After partially recovering last week’s drop on Friday, it traded flat at 111.55 per dollar as Asian investors discount its safety value owing to Japan’s virus exposure.
“The market reaction to the coronavirus appears to be evolving, beginning to differentiate the currencies vulnerable to the virus from the rest. U.S. dollar assets provide relative attractiveness. In fact, our economists forecast no impact on U.S. growth from Covid-19, with relatively few domestic incidents and a low dependency on China’s economy.”
Against a basket of currencies, the dollar crept back toward an almost three-year peak touched last week, before soft economic data knocked it from its perch on Friday.
It was firmer against the euro at $1.0827 and pound at $1.2946. It last traded at $0.6613 per Australian dollar $0.6324 per kiwi.
Covid-19 has killed more than 2,400 people in China, which also accounts for 98% of global diagnoses. Four Chinese provinces on Monday lowered their emergency response measures as domestic containment efforts seem to be working.
However, the weekend’s spread outside of China seems to have caught authorities off-guard.
Italy has halted the carnival of Venice, closed schools, and sealed off affected towns across its wealthy north, but is struggling to find out how and where the virus’ spread first began.
South Korea is on high alert and battling to stem steep rises in infections – all adding to the already massive disruption to the world’s economy.
“From here on, a lot will depend on how fast China can resume production and contain negative implications for supply chains and global economic growth.”
Stephen Innes, Asia Pacific Market Strategist at AxiCorp