- Newly-improved AUD outlook besmirched by virus fears.

- AUD underperforms but GBP bottom of barrel Tuesday.

- CNY, AUD face economic hit from virus, more rate cuts.

- Charts flag risk of further leg down for AUD/USD rate.

- CBA tips economic toll and AUD/USD back near 0.6650.

Image © China Government Network. Li Keqiang, Premier of State Council. Wuhan, January 27. CC Licensing.

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The Australian Dollar advanced on the Pound Tuesday but ceded ground to other rivals amid continued concern over a rapidly spreading coronavirus.

The Pound-to-Australian Dollar rate was lower for the session although the Aussie was itself an underperformer and firmly in the frame for the antipodean declines are concerns about the spread of coronavirus, which is now threatening to bring meaningful parts of the world's second largest economy to a standstill.

Coronavirus has clouded an already-uncertain global growth outlook and prompted a sell-off in risk assets over the last week, although Tuesday's fall in the China-sensitive Aussie was at odds with the mood in global stock markets.

Stocks rebounded Tuesday in moves that could portend salvation for the Aussie, although some analysts say any stabilisation will be short-lived.

"An imminent rate cut, an ailing labour market and a potentially temporary slowdown in China's economy due to the virus is likely to put further pressure on the Aussie dollar. An interest rate cut by the RBA within the foreseeable future has not yet been adequately priced in, i.e. the AUD could well depreciate even further," says Marc-Andre Fongern of MAF Global Forex.

Above: Australian Dollar performance against major rivals Tuesday. Source: Pound Sterling Live.

Australia is itself handling five confirmed cases of China's new coronavirus and hundreds of Australians are still trapped in Wuhan city of Hubei Province that is the epicentre of the outbreak, while the Aussie economy is arguably one of the most exposed to the hit that may now loom for its Chinese trading partner.

Fears about the possible impact of the rapidly spreading virus are now in the process of reversing last week's gains in the market-implied Reserve Bank of Australia (RBA) cash rate for next week.

Last week investors pared back expectations for a February 04 rate cut after Australia's major lenders rethought forecasts following December's jobs report, which revealed faster-than-expected employment growth that dragged the jobless rate down from 5.2% to 5.1%. However, the already-struggling retail sector is now contending with public concern over the infectious disease while the mining sector is at risk from the slowdown in China.

Final quarter inflation data is due out at 00:30 London time on Wednesday and will be scrutinised by the RBA.

Above: Pound-to-Australian-Dollar rate shown at hourly intervals.

"AUD/USD eroded its short term uptrend at the end of last week and sold off aggressively on Monday. Attention is on the .6755 November low and the 78.6% retracement at .6749, this has been tested but is currently holding, we note the 13 count on the 240 minute chart and this should prompt a rebound. Failure here will target the .6671 October low," says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank.

Jones says the Aussie will remain "offered" so long as the AUD/USD rater is below its 200-day moving average, which is currently located around 0.6877.

"The US Dollar Index – Dollar strength remains evident and looks to extend further towards the next band of resistance at 98.37/54 (May high, November high and 61.8% retracement)," Jones writes in a research note Tuesday.

Above: AUD/USD rate shown at hourly intervals.

The Aussie were suffering Tuesday as FX investors and traders eschewed so-called risk assets amid mounting uncertainty over whether Chinese authorities really do have a grip on the coronavirus that has now spread to many other countries including Germany, the U.S. and Australia. German media reported Tuesday that the country has a confirmed case of coronavirus that looks to be the result of human-to-human transmission.

China's National Health Commission said Tuesday that at 24:00 on January 27, it was aware of 4,515 confirmed cases of the new coronavirus, up from 291 less than a week ago on January 21. That's according to a Yandex translation of a notice on the Commission's Chinese language website.

The Commission declared 977 "severe cases," up from zero on January 21 and 102 on January 22. There were 106 deaths declared as of midnight Monday, up from zero on January 21 and from 9 on January 22. And the Commission said that it was tracking 6,973 suspected cases, up from 922 on January 21.

Above: Pound-to-Australian-Dollar rate shown at daily intervals.

"Commodity FX has been underperforming within both G10 and EM FX," says Petr Krpata, chief EMEA FX and interest rate strategist at ING. "So long as current concerns remain in place (also evident in the bond market where core yields have been dropping) the dollar and the yen should continue doing well while a rebound in EM FX and cyclical G10 currencies is unlikely."

Little is known about the virus or its destructive capacity although one thing that's clear is that it can spread rapidly. It's also believed the stricken may be contagious even before they begin to show symptoms, which is enough to make it a significant economic threat even if the mortality rate appears low.

"Price action overnight suggests some stabilisation in pro-cyclical currencies today (after the large declines yesterday) but without more progress / evidence of stabilization a more meaningful and lasting rebound is unlikely," Krpata says.

Above: AUD/USD rate shown at daily intervals.

Assuming that China's figures are accurate, the mortality rate is less than 3% - although that doesn't mean the virus can't bring economies to a standstill. China's Hubei province, not to mention other municipalities, are now in quarantine and cut off from the rest of the country. Meanwhile, and likely fearing infection, citizens have taken to shutting themselves indoors.

"We see a risk that AUD falls towards its 2019 low point of 0.6671 if the virus continues to spread," says Kim Mundy, a London-based strategist at Commonwealth Bank of Australia. "The reduction in tourist outflows from China, as Chinese authorities try to contain the spread of the coronavirus, has direct implications for a range of economies such as Australia. China is the largest source of foreign tourists for Australia. This is on top of the potential negative impact on tourism from the Australian bushfires."