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Offshore yuan holds below 7.0 mark before China reopens

Offshore yuan holds below 7.0 mark before China reopens

New updates over the weekend include a surge in the number of coronavirus infections in China, travel bans and ceasing of flights between other countries to the mainland.

In addition, the PBoC decided to launch a 1.2 trillion yuan (US$ 174 billion) reverse purchase operation on 3rd February as China’s market reopens.

The number of confirmed coronavirus infection cases in China has reached a new high of 17,205 cases. Suspected cases are at 21,558 and 361 people have died from this disease. The silver-lining is that the number of newly-detected suspected cases have declined over the weekend, suggesting that stringent isolation and traffic control since 23rd January in most provinces have helped to contain the spread.

The offshore yuan CNH, has strengthened against the greenback this morning to 6.985 area. The currency has slumped more than 2% against the US dollar since the outbreak of the coronavirus on 21st January, reversing a strengthening trajectory from the finalisation of the phase-one trade deal with the US. The movement of CNH is widely viewed as a barometer of China’s negotiation with the US as well as its economic health.

Economists worry that the epidemic would pose adverse impact to China’s economic growth. According to Bloomberg’s economist, the disease could have brought down Q1 GDP growth to 4.5% from 6% observed in the fourth quarter of 2019.

China’s stock market is set to open lower, and if the selloff is persistent throughout the day it could hurt sentiment across Asia-Pacific. During the CNY holiday when China’s market was shut, the Hang Seng Index lost over 6%.

Gold price climbed to US$ 1,586, hitting its highest level seen since 8th January. A falling US dollar and central banks’ accommodative monetary stance propelled the rally in precious metals on top of the natural demand for safety. Immediate resistance level can be found at a psychological level of US$ 1,600.

Crude oil prices slumped to a four-month low of 56.8 for Brent, as travel bans and reduced business activity in China dampened the outlook for energy demand. Breaking below current levels will open more room to the downside towards the US$ 50 area.



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