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Trade-linked currencies fall on worries about fallout from virus

Kitco News

LONDON (Reuters) - The Australian dollar fell to a four-month low on Friday while China’s offshore yuan struggled to find a footing on concerns about the economic impact of a virus inside and outside China.

The World Health Organization said late on Thursday that the coronavirus outbreak was a global emergency, but opposed travel restrictions and said China’s actions so far would “reverse the tide” of its spread, reassuring markets.

The United States and other countries, however, tightened travel curbs on Friday and businesses said they were facing supply problems because of the coronavirus in China.

The yen and Swiss franc, which tend to rally at times of nervousness, were little changed on Friday but moves in other currency pairs suggested caution remained high.

China's offshore yuan gave up earlier gains and was last down against the dollar. The U.S. currency added 0.1% to 6.9884 CNH=EBS, although that was some way off the 7.0038 level the yuan dropped to on Thursday.

The death toll in China has now reached 213 and the number of cases is 9,692 - up from 7,711 a day ago. It has spread to 18 countries. The United States and other countries have warned citizens against visiting China.

“While the WHO does not recommend a travel and trade restriction, the impact on China’s economy is likely to materialize gradually, which will yield an international impact as China plays an essential role in the global supply chain,” Commerzbank economist Hao Zhou said.

The Australian and New Zealand dollars, both sensitive to sentiment in China, fell to new multi-month lows.

The New Zealand dollar NZD=D3 dropped 0.5% and touched a two-month low of $0.6454. The Australian dollar AUD=D3 lost 0.5% to $0.6683, a four-month low.

Both have shed more than 1.5% this week and the Aussie has dropped more than 4% this month, leaving it poised for its worst month since May 2016.

The euro slipped marginally after a first estimate showed that the euro zone economy grew less than expected in the last quarter of 2019, while core inflation slowed in January.

The common currency then recovered and was last up 0.1% at $1.1035 EUR=EBS.

“We see support building around the $1.1000 level in EUR/USD. Measures to help contain the virus look to be helping ease fears of major global escalation which could help to slowly lift risk appetite,” MUFG analysts said in a note sent to clients.

The dollar index, which measures the currency against a basket of rivals, was unchanged at 97.841 .DXY.

Sterling extended its run after the Bank of England kept interest rates on hold, citing a relatively more upbeat economic outlook. The pound was last up 0.2% at $1.3122 GBP=D3.

Versus the euro it rallied 0.2% to 84.07 pence EURGBP=D3.

Sweden’s crown, which is closely linked to sentiment toward global growth and trade, weakened. The euro rose 0.5% to 10.68 crowns EURSEK=D3, leaving the Swedish currency at its weakest since late November.

The dollar also gained 0.5% versus the crown SEK=D3.

Graphic: World FX rates in 2019 - here

Reporting by Tommy Reggiori Wilkes; Editing by Hugh Lawson and Gareth Jones

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