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Yuan struggles near 2½-month low after Trump's threats

London

THE Chinese offshore yuan remained hobbled near 2½-month lows on Tuesday after US President Donald Trump's threat of additional tariffs on Chinese goods rattled traders, although broader currency markets were largely stable.

Foreign exchange traders have not panicked about the prospect of a breakdown in negotiations between China and the United States to resolve their trade conflict, and the moves on Tuesday were small following a bout of nerves at the start of the week.

Mr Trump tweeted on Sunday that he would raise tariffs on US$200 billion worth of Chinese goods to 25 per cent from 10 per cent by the end of the week and would "soon" target the remaining Chinese imports with tariffs.

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But top Chinese negotiator Vice Premier Liu will head to Washington this week for talks, and some investors have interpreted Mr Trump's threat as a negotiating tactic.

"As long as the talks continue, the market will remain relaxed...that there will be a deal after all," said Esther Reichelt, currency analyst at Commerzbank.

The offshore yuan on Monday had been on course for its worst daily drop in 10 months, briefly touching a four-month low of 6.8218, but it later recovered some of those losses while remaining under pressure.

It was down 0.1 per cent at 6.7833 yuan per dollar by 1030 GMT, its weakest since Feb 19.

The recovery in investor sentiment on Tuesday was fragile, with gains in stock markets small and the safe-haven yen up 0.1 per cent to 110.61. The Japanese currency had briefly touched five-week highs of 110.285 on Monday.

The US dollar was flat. The index - which measures the greenback against a basket of currencies - stood at 97.528.

The Australian dollar surged as much as 0.8 per cent to US$0.7048 after the country's central bank held interest rates at a record low, dashing speculation it might ease policy following a weaker-than-expected reading of inflation.

Central banks across the globe have turned increasingly dovish in 2019, raising expectations that policymakers would ease monetary conditions.

"Today's position from the RBA marks a correction to the recent trend in G10 FX, where expectations of policy normalisation have been scaled back and fresh easing (particularly in Australia and New Zealand) has been priced in," ING analysts said in a note.

The euro hovered around US$1.12. Sterling slipped 0.1 per cent to US$1.3084 as investors remained cautious about talks between the Conservative and Labour parties on a Brexit deal. REUTERS