The spread of the disease, with the outbreak centered
in Wuhan in Hubei province, has led to the halting of flights
to and from China, and to the closure of crucial land borders,
including those with Russia and Vietnam.
The effects on commodity markets so far have been muted, due
to the fact that Chinese economic activity was already at a
near-halt for the lunar new year holiday. But the currency
situation was already adding support to dollar-denominated
The Chinese financial markets closed on January 24 for the
new year break, which should have ended on January 30. That
break has been extended until February 3 due to the
But trading continues in the offshore currency, a market in
yuan that is held in Hong Kong, or outside China, and is not
subject to currency controls.
According to exchange-rate website Oanda, the offshore yuan
was trading at 6.96 yuan to $1 on Thursday, January 30, 1.8%
weaker compared with January 20, immediately after the first
death from coronavirus was recorded by the Chinese
The fall in the yuan reversed a trend toward the currency
becoming stronger, which had come from a rapprochement between
China and the United States as they made preliminary steps
toward ending their trade war.
The yuan weakened to more than 7 yuan to $1 at several
points in trading on both Thursday and Friday, but averaged a
slightly stronger level. A value of 7 yuan to $1 was a key
point of resistance that was breached for the first time in
more than decade in September 2019, when trade relations with
the US were particularly frosty.
The stronger yuan was seen as a sop by Beijing to the US, which has accused China of weakening its
currency in order to gain an advantage in international
This more recent fall in the yuan, on the other hand, has
been driven by economic concerns over the wider consequences of
The offshore market is currently trading without direction
from the heavily controlled onshore market. It remains to be
seen what degree of movement will be seen in onshore markets
when trading resumes.
China is a major producer of a wide range of industrial
minerals, including titanium dioxide, refractory products,
antimony, barite and rare earths, and an importer of others
including spodumene and ilmenite. The current situation leaves
these markets highly exposed to the dollar-yuan exchange