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Yuan Falters as China Battles Wuhan Virus

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01/24/2020 | 01:39am EDT

By Joanne Chiu

China's currency weakened ahead of the Lunar New Year holiday, as the widening spread of the Wuhan coronavirus fanned worries of a deeper economic slowdown in parts of the country.

The yuan traded at 6.9251 against the U.S. dollar in offshore trading midday Friday, a two-week low. Onshore, the currency fell more than 1% this week before Chinese markets closed Jan 24 for a weeklong holiday.

The currency's slide has erased recent gains it chalked up after the U.S. in mid-January removed China from a list of trading partners it considers currency manipulators. The signing of a first-stage trade deal between Beijing and Washington had also helped buoy the yuan.

China this week reported sharp increases in the number of people sickened by a pneumonia-causing virus that was first identified in the central city of Wuhan in December. The government has imposed lockdowns on three major cities, stopping flights and shutting public transportation systems to curb the spread of the coronavirus, which has infected more than 800 people and killed 25.

The country was already contending with slower economic growth prior to the outbreak, and the yuan could come under more pressure if the viral outbreak worsens and crimps consumer spending, travel and business activity, strategists say. Already, many Chinese citizens have canceled or modified their travel plans during what is traditionally the country's busiest travel season.

"The bad news is that the worst has yet to come, as the number of new infections is still on the rise," said Larry Hu, chief China economist at Macquarie Capital Ltd.

Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank in Hong Kong, said some investors who profited from the yuan's recent climb have closed out their positions ahead of the Lunar New Year break. "They're wary of an escalation of confirmed cases after the holiday," he said.

Mr. Cheung said he expects the yuan to trade around 6.9 to the dollar as the market assesses the impact of the coronavirus outbreak on China's growth outlook and consumption patterns.

Back in 2003, the outbreak of severe acute respiratory syndrome--caused by a similar but more deadly virus--initially caused China's economic growth to slow, but the economy rebounded quickly later in the year after the disease's spread was brought under control. SARS ended up killing 774 people world-wide and infecting more than 8,000 people, mostly in China.

Last August, Beijing let the yuan weaken beyond 7 per dollar for the first time in more than a decade, during a time of heightened trade tensions. The Chinese currency touched a low of nearly 7.2 in early September and has broadly strengthened since. The country last week reported GDP growth of 6.1% for 2019, its slowest growth rate in decades but within a range it earlier forecast.

Write to Joanne Chiu at joanne.chiu@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
MACQUARIE GROUP LIMITED -6.04% 80.01 End-of-day quote.-38.23%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.24% 7.0865 Delayed Quote.1.82%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.01% 7.0941 Delayed Quote.1.57%
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