The yuan and its proxy, the Australian dollar, were on the defensive on Monday as China's share market reopened with big losses after the Lunar New Year break and anxiety over a virus outbreak in the country kept investors on guard.
Chinese shares tumbled after the 10-day break was extended to help stem the epidemic though falls were in line with what had been indicated by Chinese share futures and ETFs (Exchange Traded Funds) traded outside China.
Reaction in currency markets has been limited so far although the mood remained cautious as authorities have taken drastic steps worldwide to curb the epidemic. Travel curbs and business shut-downs are hitting many parts of China as the death toll rose by 56 to 350 on Monday in Hubei province, ground zero of the epidemic.
Australia, Singapore and the United States are among countries to have banned entry by foreign nationals who have recently visited China. "The number of new patients continues to rise. And even though the virus may be turning out not to be that severely pathogenic, movements of people and goods will likely be restricted for the time being," said Masashi Hashimoto, senior currency analyst at MUFG Bank.
"That will surely pour cold water on signs of rebound in the Chinese economy we saw since December." The offshore yuan eased 0.1%, hitting one-month low of 7.0117 per dollar while its onshore unit fell over 1% from its levels before the holiday to 7.0125 per dollar. The Australian dollar fetched $0.66925, up slightly on the day but was precariously close to its 10-1/2-year low of $0.6670 touched last October.
The currency is often regarded as a proxy to the yuan, being more freely traded and because of Australia's reliance on trade with China. "Given the current fragile sentiment, I would not be surprised to see the Australian dollar slipping below its previous 10-year low," said senior strategist Yukio Ishizuki at Daiwa Securities.
To head off any panic, China's central bank took a range of steps to shore up an economy hit by travel curbs and business shut-downs because of the epidemic, including an injection of 1.2 trillion yuan ($173.81 billion) worth of liquidity into financial markets.
Still, uncertainty created by the epidemic is keeping investors cautious, helping support safe-harbour currencies. "Fleeing to safe-havens is a big theme now. Investors will continue to sell currencies in which they have long positions. It will be difficult to buy the yuan at the moment," said Bart Wakabayashi, Tokyo branch manager of State Street Bank.
The yen traded at 108.48 yen per dollar, a tad weak so far in Asia but still close to its three-week high of 108.305 set on Friday. The Swiss franc changed hands at 0.96395 franc per dollar, near its 15-month high of 0.96135 set last month. Against the euro, the franc stood at 1.06810 per euro, just below its 33-month high of 1.0666 touched last week.
The euro stood at $1.1084, having risen 0.6% last week for its first weekly gain in five helped by a boost from month-end money flows from European exporters on Friday. Elsewhere, sterling fell 0.2% to $1.3172.
Britain laid out a tough opening stance for future talks with the European Union following its exit last week, saying it would set its own agenda rather than meeting the bloc's rules. Sentiment toward sterling may also be coloured by a stabbing incident in London on Sunday, which police described as a terrorist incident.
Looking ahead, traders will keep an eye on the start of a US state-by-state nominating process to pick presidential nominees, with Iowa holding caucuses on Monday. Senator Bernie Sanders and former Vice President Joe Biden are running neck-to-neck among Democratic contenders vying to challenge Republican President Donald Trump in November.