Mystery virus poses a threat to the Chinese economy and the Phase One trade deal may
not actually help the Aussie dollar.
AUD/USD fell to its lowest levels since December 11th on Wednesday, as concerns
mount over the impact of the Coronavirus on China’s economy. China is Australia’s largest
trading partner and negative news for China is typically negative for the Australian dollar. The
safe-haven Japanese yen rallied on the initial news of the virus while the Chinese yuan sold off.
The new virus is believed to have come from a wholesale seafood market in Wuhan,
China. It has now killed nine people and afflicted more than 400 others. Officials have
confirmed that it is contagious between humans. To make it worse, the Chinese Lunar New
Year holiday is coming up on January 25th and hundreds of millions of people are expected to
travel, threatening a further spread of the virus. Cases have also emerged outside China and
one instance in the United States was confirmed on Tuesday.
Markets cheered last week’s signing of the Phase One trade agreement between the US
and China. As the agreement is good for the Chinese economy, normally one would expect it to
be bullish for the Australian dollar.
However, analysts have suggested that the Phase One deal could actually pressure the
Aussie. The reason for this is that within the agreement, China committed to purchase as much
as $200 billion more US goods and services, which could result in fewer Australian exports to
China. Australia could be replaced by the US as a major supplier of liquefied natural gas to
Looking at the AUD/USD daily chart we can see that a Head and Shoulders pattern
formed and that price has broken below a well defined neckline. Potential support lies at
the prior low of 0.6800. Investors now look to the Australian jobs report scheduled for release on
Thursday. Analysts expect the unemployment rate to hold steady at 5.2% and that 15.0K new
jobs were created in December.
Dan Blystone, Senior Market Analyst at Scandinavian Capital Markets and founder of TradersLog.com. He is a trading industry professional with extensive experience as a proprietary trader, broker and market analyst.