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Yuan, Aussie hit as US threatens more tariffs on China

Yuan, Aussie hit as US threatens more tariffs on China

Wed July 11 2018


The dollar rose near an 11-month high against the Chinese yuan and the Australian dollar tumbled after the US said it would slap tariffs on an extra $200 billion of imports from China, sharply escalating tensions between the world's two biggest economies.


The news threw US-China trade war worries back into the spotlight just days after Washington imposed 25 per cent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of US exports to China.


The offshore Chinese yuan fell as low as 6.6918 per dollar , down more than 0.5 per cent from late US levels and edging near its 11-month low of 6.7344 touched on July 3. The Australian dollar slipped 0.6 per cent to $0.7417 from this week's high of $0.7484, which was its highest levels in more than three weeks.


The news also prompted knee-jerk selling of riskier assets against less vulnerable currencies.


The dollar traded at 110.91 yen after dropping to around 110.80 in early Asian trade from around 111.25 in late US trade. It had hit a seven-week high of 111.355 yen earlier on Tuesday. The Aussie slumped 0.6 per cent against the yen, changing hands at 82.30 yen.


The yen tends to be bought at times of economic and political stress because Japan's status as the world's largest credit nation suggests any repatriation by Japanese investors were likely to exceed those from Japan by foreign investors.


“With the announcement from the US on the Chinese tariffs, the reaction on the policy side from China will be the key event to watch in the coming days,” said Shinichiro Kadota, senior FX strategist for Barclays in Tokyo. “If China does react with further escalation in tariffs, the US equity market as well as the dollar-yen or Australian dollar could face further downward pressures,” he said.


US Trade Representative Robert Lighthizer said the United States would impose tariffs of 10 per cent on additional Chinese imports worth $200 billion.


The Trump administration released a wide-ranging list of Chinese goods it wants to hit with tariffs, including hundreds of food products as well as tobacco, coal, chemicals and tires, dog and cat food, and consumer electronics including television components.


Administration officials said a two-month process would allow the public to comment on the proposed tariffs before the list is finalised. The move came after US President Donald Trump said last week the United States may ultimately impose tariffs on more than $500 billion worth of Chinese goods—roughly the total amount of US imports from China last year.


“Because Trump talked about the $500 billion figure, it was not a complete surprise. Yet markets will inevitably react to these types of news headlines,” said Kyosuke Suzuki, director of forex at Societe Generale. “Since the new tariffs won't be in place for two months, markets could soon calm down, although we will have to see how share markets, especially Chinese shares, will react to this,” he said.


The euro lost 0.1 per cent against the dollar, edging down to $1.1729. The British pound also shed 0.1 per cent to trade at $1.3265. The dollar index, which measures the greenback against a basket of six major currencies, was up 0.1 per cent to 94.214, moving off a nearly one-month low around 93.71 hit on Monday.



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