The Australian and New Zealand Dollars are currently in a position to finish sharply lower on Monday. The downside momentum into the close indicates the selling pressure is likely to continue early Tuesday.
On Monday, the Aussie plunged through its November 29 main bottom at .6754, on its way to its lowest level since October 16. The Kiwi traded through its December 18 main bottom at .6554.
The currencies were pressured by mounting concerns over the economic fallout of the coronavirus outbreak.
Health authorities around the world are working to prevent a pandemic. The virus has killed 81 people in China, and nearly 2,800 people have been infected globally. Chinese Premier Li Keqiang will “inspect and direct” efforts to control an outbreak in the central city of Wuhan and promised reinforcements, as people accused provincial authorities of being too slow to respond.
The Australian and New Zealand Dollars are dropping because they have exposure to the Chinese economy. Some traders blamed low liquidity because of an Asian holiday on the accelerated selling pressure.
Additionally, “the Australian Dollar is often treated as a proxy to the Chinese Yuan, as it is a large, liquid and freely traded currency that has notable exposure to China owning to the strong trade links between China and Australia,” according to PoundSterlingLive.
The yuan has gone into a tailspin since it rallied to a 5-1/2-month high earlier in January. The U.S. Dollar has gained more than 2% versus the Chinese currency since last Monday.
What happens in China with regards to the coronavirus will determine the direction of the Aussie and Kiwi.
“Whether and to what extent the coronavirus may possibly cause a humanitarian crisis remains to be seen, but adverse effects on China’s domestic economy are likely to be unavoidable. Due to the incalculable circumstances, investors are significantly reducing their risk appetite. The market appears to have little confidence in the measures already taken by the Chinese government. As a result, demand for safe-haven currencies should remain consistently strong for the time being. This virus can be expected to accompany the markets for some time to come,” says Marc-Andre Fongern, Head of FX Research at MAF Global Forex.
For now, the spread of the virus appears to be a Chinese issue, with international records still contained to a handful of cases. The World Health Organization made a similar statement last week when it refused to call the problem a “global emergency”.
With no end in sight to the crisis, rallies by the Aussie and Kiwi are likely to be sold.
This article was originally posted on FX Empire
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