A Bumpy Start in 2020: Opportunities and Challenges for FX Market

The first quarter of 2020 will undoubtedly leave a distinct mark in history. Less than 2 months into 2020, the global market has been under one shock after another: Australian‘s unprecedented bush fire; the US’ air strike killing Iran‘s senior military official; China’s raging coronavirus(2019-nCoV) outbreak that is fast spreading to other countries; and Britain‘s historical leave from the European Union. In particular, China has been significantly affected by the 2019-nCoV outbreak as the world’s second-largest economy, while global economy has also felt considerable impacts.

Forex investors quickly centered their attentions on CNY‘s rate. On February 3rd, the first trading session in China’s Lunar New Year, both on-shore and off-shore CNY weakened, unsurprisingly, to over 7 to USD. But later CNY and CNH regained the losses and returned to an exchange rate below 7.

Analysts pointed out that China‘s economy will be under pressure in the short run, but in a long-term perspective, CNY’s depreciation is not well-grounded. First, in terms of imports and exports, China has always managed to maintain a surplus in international trade of goods, with exports exceeding imports. Several experts observed that the recent outbreak will hit China‘s trade of goods for the moment, but such influence will usually affect both exports and imports unbiasedly, and falling imports often come in parallel with reduced exports. So long as China manages to maintain a trade surplus, the exchange rate of CNY won’t be under very much stress.

Meanwhile, there is trade of service, represented by tourism. Travelling abroad requires purchase of foreign currencies, and the large amount of trips made by Chinese tourists overseas has made international tourism a major contributor to the deficit of the international service entry under Chinas balance of payment account.

Due to the epidemic, it‘s expected that the number of Chinese tourists overseas will fall sharply, leading to less CNY being exchanged into foreign currencies, which will benefit the rising of CNY’s rate.

The number of Chinese visits overseas has sharply declined

In terms of capital account, continuously deepening reform and opening-up will ensure that Chinese market remains attractive on the long run. Although the recent epidemic has been a hard blow on consumption, the rebalancing of China‘s economy through raising service sector’s proportion in overall economy and upgrading technology will remain the future trend, and analysts suggest these factors will help stabilize the CNY.

Theres no winter that will last forever, and spring will always come around. Hopefully the epidemic in China will soon be contained. Meanwhile, WikiFX continues to bring investors updates and insights of the forex market trend, and you may visit WikiFX website or App to view more.