Yen gains as risk sentiment sours

New York

THE safe haven Japanese yen gained on Friday and riskier currencies, including the Australian dollar, dropped as risk sentiment soured after US President Donald Trump threatened to impose new tariffs on China over the coronavirus crisis.

Mr Trump said on Thursday his hard-fought trade deal with China was now of secondary importance to the coronavirus pandemic and he threatened new tariffs on Beijing, as his administration crafted retaliatory measures over the outbreak.

"US President Trump soured the mood in equity markets, raising his accusations against China about the coronavirus outbreak, threatening new tariffs," Action Economics said in a report. "The yen has outperformed while commodity currencies have underperformed amid a sharp phase of risk-off positioning."

The dollar fell 0.29 per cent against the yen to 106.86 yen.

The Australian dollar, which on Thursday reached a seven-week high of US$0.6569, dropped 1.54 per cent to US$0.6410. The Chinese yuan also weakened in the offshore market to 7.1378 yuan, the most per dollar since April 2.

THE BUSINESS TIMES INSIGHTS

Powering Asean's Future 2026

Find out how enterprises are navigating power constraints and sustainability targets

ACCESS THE INSIGHTS

"Given the scale of the Covid-19 impact, there is certainly a high risk of geopolitical tensions escalating considerably as lockdowns reverse," said Derek Halpenny, head of research at MUFG. "This would clearly be another hit to global trade that would add a layer of dollar support going forward." Mr Halpenny said.

The euro continued to gain against the greenback, having also rallied on Thursday on month-end repositioning. It was last up 0.17 per cent at US$1.0974, after earlier reaching US$1.1017, the highest since April 1.

Much of Europe and Asia was closed on Friday for International Workers' Day.

The greenback gained 0.94 per cent against the Canadian dollar, which also suffered from the risk-off move.

The dollar index against a basket of currencies fell 0.04 per cent to 99.08.

Deutsche Bank currency strategist George Saravelos said that if the United States imposes capital controls on China it would be dollar-negative, as that would imply outflows from greenback-denominated assets.

"If the move is politically driven, it would be a clear dollar negative in our view. It would lead to a shift in reserve holdings out of the USD into EUR, JPY, GBP, gold and other reserve proxies," Mr Saravelos said. REUTERS