Yuan Extends Loss With China Proxies as US Trade War Reignites

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Yuan Extends Loss With China Proxies as US Trade War Reignites

foreign exchange :: 19hrs ago :: source - bloomberg

By Tian Chen and Ruth Carson

(Bloomberg) -- The offshore yuan extended losses with regional peers, as China and the US slapped tariffs on each others’ exports as the trade war came to life.

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The offshore yuan slid as much as 0.3% while currencies sensitive to China’s growth, including the Australian and New Zealand dollars, tumbled about 0.7%. China levied a tax on some products imported from the US and started a probe into Google on anti-trust law breaches, just after Washington imposed a 10% tariff on all Chinese goods.

China Hits Back at Trump With Tariffs on US Goods, Google Probe

The move shows trade tensions between the world’s largest two economies are escalating, further pressuring a China recovery that’s already weighed by a prolonged housing crisis and weak consumption. It’s dealing a blow to investor confidence in risk-sensitive assets in Asia Pacific, as China has been an anchor of market stability and the region’s growth engine.

The Hang Seng China Enterprises Index trimmed its advance to 2.4% in the Hong Kong afternoon Tuesday, from nearly 4% in morning trading. Other Asian currencies like the Thai baht and the Indonesian rupiah pared their gains. The Mexican peso dropped 0.3%.

“Unsurprisingly, a risk off tone has taken hold of markets, with the yuan weakening and causing spillover into other Asian currencies,” said Khoon Goh, head of Asia research at ANZ Banking Group. “If there is no news of any deferral, we will see a further selloff in Asian asset markets, with the focus back on tomorrow’s fix.”

Looking ahead, currency traders are waiting for Wednesday’s daily reference rate for the yuan, with some expecting Beijing to relax its tight grip on the managed currency amid the worsening trade conflicts. China’s domestic markets will re-open after holidays.

China May Loosen Grip on Yuan If Trump Reignites Trade War

Twists and turns in President Trump’s trade policies have whipsawed global markets since his election, with the dollar jumping to multi-year highs against the likes of Aussie, kiwi and the yuan before paring gains. Wall Street banks, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., say there is still plenty of money to be made buying the greenback amid market uncertainty.

On Tuesday, Beijing announced 15% levies on coal and liquefied natural gas and 10% on oil and agricultural equipment from the US. The government also declared export control on tungsten-related materials.

The State Administration for Market Regulation said in a statement it will launch an investigation into Google. The tech giant’s search and internet services for consumers have been unavailable in China since 2010, although the company retains operations in the country, primarily around its advertising business.

“It looks like a fairly muted retaliation from first glance, as energy imports accounted for around $20 billion or 10-15% of China’s imports from the US,” said Lynn Song, chief economist for greater China at ING Bank in Hong Kong. “There is still hope that tariffs could get quickly unwound or pushed back after face to face talks as well.”

Trump’s Canada, Mexico Border Deals Avert Trade War for Now

Earlier this week, Trump reached last-minute agreements with Mexico and Canada to delay 25% tariffs in return for tougher measures against migration and drug trafficking at the border. That kindled hopes that the US President may take a softer stance on China.

On Tuesday in Asia, Trump said his administration plans to speak with China, raising the possibility of a potential reprieve on the tariff. White House Press Secretary Karoline Leavitt later told Fox News there’s a plan for the president to speak with his Chinese counterpart Xi Jinping about “illegal Chinese fentanyl that is killing tens of thousands of Americans every single year.”

“China will be forced to react though on its own terms and targeting specific sectors,” said Rajeev De Mello, global macro portfolio manager at Gama Asset Management. “Markets will be supported at lower levels by the expectation that market friendly measures will be announced when China markets re-open after the Lunar New Year holidays.”

--With assistance from Karl Lester M. Yap, Betty Hou and Aya Wagatsuma.

(Updates with more details on tax.)