Aussie dollar jumps on purported virus treatments

London

THE Australian dollar hopped half a per cent higher on Wednesday, as reports of medical breakthroughs in the fight against the new coronavirus boosted growth-linked currencies.

Media reported that a Chinese university had found a drug to treat people with the virus, while researchers in Britain had made a "significant breakthrough" in finding a vaccine.

While the Chinese report was a day old and the British report indicated the research trials were in early stages, traders used the headlines to load up on risky assets.

Against the greenback, the Aussie rose 0.5 per cent at US$0.6770, with some hawkish comments from the central bank governor in Asian trading also boosting sentiment. The Australian currency is considered as a barometer of risk appetite towards China, given its close economic ties with Beijing.

Gains for riskier currencies translated into weakness for currencies perceived as safe havens, such as the Japanese yen and the Swiss franc with both of them weakening against the US dollar.

Changjiang Daily, the official newspaper of the city of Wuhan, reported on Tuesday that a team of researchers led by Zhejiang University professor Li Lanjuan have found that drugs Abidol and Darunavir can inhibit the virus in in vitro cell experiments.

Robin Shattock, head of mucosal infection and immunity at Imperial College London, said he was now at the stage to start testing the vaccine on animals as early as next week, with human studies in the summer if enough funding is secured, Sky News reported.

The US dollar also benefited from a rebound in risk appetite, with the greenback advancing 0.1 per cent to 98.04.

Though the US dollar has veered between acting as a classic safe-haven asset during times of trade-war tensions and benefiting from its status as a high-yielding currency in the developed market space in 2019, the opening days of 2020 have seen the greenback's correlation with risky assets strengthening considerably.

As a result, the US dollar weakened last week as news of the spreading China virus hit risk sentiment globally, with only stocks and risky assets gaining this week as China's response to the coronavirus outbreak raised hopes it could be contained, even as the death toll rose sharply.

With more than 99 per cent of confirmed cases confined to China and the central bank pouring trillions of yuan into the financial system, investors have partially unwound their recent flight to safety.

The Chinese currency in the offshore market rebounded smartly 0.2 per cent against the US dollar, rising past the 6.98 yuan per dollar line. REUTERS