Safe haven currencies gain as virus fears hit yuan

London

CHINA'S yuan tumbled on Tuesday, pulling away from six-month highs against the US dollar, while the safe-haven yen rallied as the spread of a pneumonia-like virus in China sparked a sudden bout of risk aversion and rattled world markets.

China reported a fourth death from a new coronavirus as the number of cases continued to rise, just as hundreds of millions of Chinese prepared to travel for the Chinese New Year holiday.

Global stocks fell as the outbreak rekindled memories of the severe acute respiratory syndrome (SARS) in 2002-2003, another coronavirus which broke out in China and killed nearly 800 people in a global pandemic.

"You've got a stronger yen, a stronger Swiss franc and risk aversion is setting in across everything," said Kit Juckes, an analyst at Societe Generale.

The yuan fell almost 0.7 per cent in offshore trading to 6.9126 per US dollar, off Monday's six-month highs. Onshore, the yuan fell to its lowest in over a week at 6.9094.

Currencies linked to Chinese trade and tourism also dropped.

The Australian dollar touched its lowest in over a month at US$0.68445. The New Zealand dollar fell as much as a third of a per cent to US$0.6589 before recovering some ground. The Korean won dropped 0.6 per cent.

In contrast, the yen gained 0.15 per cent to 110.05 per US dollar as investors moved into safe-haven assets like the yen and US Treasuries. The Swiss franc rose to 0.96750 to the US dollar.

The dollar index, which measures its value against a basket of six currencies, was down at 97.481 - near the highest level in a month.

Speaking at the World Economic Forum in Davos, United States President Donald Trump said negotiations with China over a Phase Two trade deal will start soon. The Phase One deal signed last week boosted confidence in the world economic outlook, supporting the US dollar.

The euro and sterling gained against the US dollar. Sterling benefited from news that Britain's economy created jobs at its fastest rate in nearly a year in the three months to November, potentially undermining the case for a Bank of England interest rate cut next week.

The pound was last up 0.3 per cent at US$1.3053. The euro held a narrow range around US$1.1105 before Thursday's European Central Bank meeting.

Earlier on Tuesday, the Bank of Japan kept its short-term interest rate target at minus 0.1 per cent and its pledge to guide 10-year government bond yields around zero. REUTERS