US threat of more tariffs on China hits yuan

London

THE Chinese yuan skidded towards an 11-month low and the Australian dollar fell on Wednesday after the Trump administration threatened 10-per-cent tariffs on US$200 billion worth of Chinese imports in an escalating trade conflict.

The most-traded currencies, the US dollar and euro, did not move much, though the single currency fell in European trading.

The safe-haven Japanese yen slipped but nervousness in broader currency markets was lower than in equities, where falls were hefty in Asia and Europe.

Traders focused their attention on where a ratcheting of Sino-US trade tensions will likely hit fastest: in China and in Asia where countries including Australia depend on Chinese demand for their exports.

"The recent recovery on the markets came to an abrupt end on Wednesday morning. Investors are going to be waiting for a reaction from Beijing once again," Commerzbank analysts said.

They said it remained a matter of debate whether the biggest impact of more tariffs would be felt in China or the US, describing the implications for the dollar as "difficult to gauge" as weaker growth may coincide with higher inflation.

The offshore Chinese yuan fell as low as 6.7010 per dollar , down more than half a per cent from late US trading and edging near its 11-month low of 6.7344 touched on July 3.

The Australian dollar slipped as much as one per cent to US$0.7384 from this week's peak of US$0.7484, which was its highest level for more than three weeks.

The euro fell 0.3 per cent to US$1.1713 against the US dollar while the dollar index rose 0.2 per cent to 94.367. The dollar's rally since mid-April has run out of steam in recent weeks. "We think the dollar has neared a peak. Cycle-wise, valuations on the dollar is more expensive than its peers and the economic momentum is more favourable for Europe and Japan," Russell Investments global head of investment strategy, Andrew Pease, said.

The yen had strengthened in Asian trading but fell back and was flat versus the dollar at 111.23 yen in Europe. The dollar had hit a seven-week high of 111.35 yen on Tuesday.

Sterling fell to US$1.3242, 0.2 per cent lower on the day, although the fall was limited by news that UK Prime Minister Theresa May had the support of senior ministers, calming markets after major cabinet resignations this week. REUTERS