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U.S. threat of more tariffs on China hits yuan, Aussie

Kitco News

LONDON (Reuters) - The Chinese yuan skidded toward an 11-month low and the Australian dollar fell on Wednesday after the Trump administration threatened 10-percent tariffs on $200 billion worth of Chinese imports in an escalating trade conflict.

The most-traded currencies, the U.S. 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-U.S. trade tensions will likely hit fastest: in China and in Asia where countries including Australia depend on Chinese demand for their exports.

The news of more possible tariffs comes days after Washington imposed 25-percent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of U.S. exports to China.

“The recent recovery on the markets came to an abrupt end this 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 United States, 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 CNH=D3, down more than half a percent from late U.S. trading and edging near its 11-month low of 6.7344 touched on July 3.

The Australian dollar AUD= slipped as much as 1 percent to $0.7384 from this week's peak of $0.7484, which was its highest level for more than three weeks.

The euro fell 0.3 percent to $1.1713 EUR= against the U.S. dollar while the dollar index .DXY rose 0.2 percent 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 favorable 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 JPY= in Europe. The dollar had hit a seven-week high of 111.35 yen on Tuesday.

U.S. Trade Representative Robert Lighthizer said the United States would impose tariffs of 10 percent on additional Chinese imports worth $200 billion.

U.S. 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 U.S. imports from China last year.

Sterling GBP= fell to $1.3242, 0.2 percent 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.

The Canadian dollar weakened 0.4 percent to C$1.3164 CAD= ahead of an expected interest rate hike by the Bank of Canada. Traders will be scanning the central bank's comments for the outlook on inflation and monetary policy.

Additional reporting by Saikat Chatterjee; Editing by Louise Ireland

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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