How #Coronavirus is affecting the Chinese Yuan

Following the recent outbreak of the coronavirus, which has since reached a global level, the spread of the disease has had a significant impact on the Chinese economy and the value of the yuan. Covid-19, as the disease has now been officially named, has adversely affected the strength of Asia-Pacific currencies, while it has also disrupted the global market due to the disturbance that has been caused to numerous supply networks.

As a result, we’re going to look at how the coronavirus is affecting the Chinese yuan in comparison to other global currencies. Additionally, we’ll also consider the impact that the disease is having on global commodities.

Comparison to the World's Key Currencies

Due to the outbreak of the disease, the desire to trade in Asian markets is, at present, significantly lower than before the spread of Covid-19. In early February of this year, China’s offshore yuan also reached a seven-week low when compared to the U.S. dollar. After an extended break during the Lunar New Year, Chinese markets suffered as the offshore yuan dropped as low as 7.023 yuan per dollar according to Reuters, while the risk of a further downgrade in Chinese GDP throughout the year is gaining momentum and concerns are mounting about the virus’ impact on the global economy.

Source: Pxhere

During what has undoubtedly become a period of unpredictability regarding the value of the Chinese yuan, global traders have reacted by selling currencies whose respective economies are somewhat reliant on Chinese demand. However, China’s growing efforts to contain the virus are helping to resurrect the value of the yuan against other currencies.

As reported on February 11th by CNBC, there were 2,015 new confirmed cases of the virus, which is the lowest daily rise since January 30th, suggesting internal improvements to contain its threat. Because of this, currency markets stabilised with the U.S. dollar handing back some gains. Increases of 0.3 per cent to the Australian dollar, for example, ensured that the Chinese yuan has modestly improved its strength in the global market.

Outside of the Chinese yuan, the outbreak is having a significant impact on the value of other global currencies, including the value of the dollar against the euro. On February 10th, the USD hit a four-month high against EUR with traders seeking to explore safe havens within the market. Furthermore, on February 11th 2020, the Australian and New Zealand dollars were reported to have dropped more than 4 per cent on the Japanese yen this year alone.

Impact on the Global Economy

As mentioned above, traders have stepped away from markets which have their currencies predominantly linked to Chinese demand or their economy. One commodity, in particular, which has struggled throughout this period of market uncertainty is crude oil. Within China, numerous factories have been forced to close due to the coronavirus outbreak, resulting in declining demand for the commodity because the quantity of oil required to run the world’s economy has decreased. The fall itself is predicted to total 435,000 barrels per day according to the International Energy Agency.

Prior to the outbreak of the disease, and as per the BBC, China consumed 14 million barrels of crude oil a day, but the continued closure of facilities and unused machinery has seen its cost reach its lowest yearly level, falling by 20 per cent. According to a report by Ebury, this has resulted in a depreciation in the value of various global currencies. The Canadian dollar and Norwegian krone have historically been oil-dependent currencies but have depreciated following China’s struggles in the global market, highlighting their importance to sought-after commodities.

What Does This Mean for Forex Brokers and Traders?

With over 43,000 cases of the disease now being reported all over the globe, the coronavirus has influenced consumer activity in China, as well as oil sales on a global level, during what is usually one of their busiest times of the year on account of the New Year celebrations, as demonstrated by the continued closure of retail establishments. Although there is a feeling that the outbreak of the coronavirus will be similar to that of the SARS virus - in the sense that the latter had no long-term economic effect on financial markets - there are a number of benefits to using a forex broker when exploring global trading opportunities at times of heightened volatility such as this.

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As the foreign exchange market is one of the largest financial markets in the world, it’s advised to anyone seeking to get involved in trading to research into some of the industry’s top forex brokers before starting. Crucially, however, as there are many brokers in what has become an immensely popular sector, there are several factors worth considering before delving into the foreign exchange market. Finding a trustworthy broker will ensure a secure trading experience, and this can be verified by checking whether a particular FX broker is regulated with their respective association.

Additionally, brokers offer prospective traders various account types which come with different initial deposit requirements. During the current market, which is somewhat unstable due to the coronavirus, finding and opening an account which only requires a small deposit may be favourable to new traders seeking to further their Forex understanding.

Entering a Crucial Period of Market Recovery

Ultimately, it remains unclear as to whether the outbreak of the coronavirus in China will have significant long-term effects on the global economy. However, what is clear, and in spite of falling currency values, is that the country’s focus on limiting the spread of the disease is helping the market to recover following a period where traders sought saf

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