USD/CNH likely to stay elevated and rally through 7.00 before long, says Scotiabank

The USD/CNH currency pair is expected to stay elevated and rally through 7.00 before long, with the overall situation will likely start to get better from April or May when air temperature rises, according to the latest research report from Scotiabank.

The 2019 novel coronavirus (2019-nCoV) has caused the 2019-20 Wuhan pneumonia outbreak. The first suspected cases were officially reported to the World Health Organization (WHO) on December 31, 2019 after the first one was detected in Wuhan on December 8.

China's National Health Commission said in a statement that the official count of confirmed cases across mainland China stood at 2,744 as of the end of Sunday, including 461 people in critical conditions and 1423 cases in Hubei province alone.

In the meantime, the authorities in Hubei province put the death toll at 76 there, bringing the overall deaths to 80. The 2019-nCoV has been more infectious but less dangerous so far, compared to the SARS-CoV and the MERS-CoV, the report added.

As of the end of Sunday, the fatality rate of the 2019-nCoV is calculated at 9.0 percent, 1.8 percent and 0.3 percent respectively in the city of Wuhan (capital of Hubei province), the province of Hubei (ex-Wuhan) and China (ex-Hubei).

The fatality rate is 14.6 percent in the first 41 Wuhan patients. Zhou Xianwang, the mayor of Wuhan, said on Sunday that there could be about 1,000 more confirmed cases of the mysterious illness in the city. Zhou also said that five million people had left Wuhan before travel out of the city was restricted, leaving nine million people still living there.

Moreover, Wuhan government estimates only 4,096 residents are outside mainland China now. China's Cabinet on Monday announced it will extend the Lunar New Year holidays to February 2 in order to strengthen the prevention and control of the new coronavirus. Shanghai, the nation’s financial centre, decided to extend the holidays further to February 9.

In the meantime, more and more foreign governments are working to evacuate their citizens from Wuhan. Uncertainties surrounding the 2019-nCoV will further dent market sentiment and impose depreciation pressure on EM Asian currencies including the yuan in foreseeable future.

Meanwhile, the front-end CNY IRS and ND IRS are expected to slide further on hopes for more monetary easing measures to be rolled out, Scotiabank further noted in the report.