China’s yuan fell to a more than 5-month low to the dollar, despite a firmer official yuan midpoint, as market sentiment soured.
The Japanese yen climbed 0.7% against the dollar to 109.795 yen, its highest level in a week, after Trump threatened to impose a 10% tariff on US$200 billion (RM800 billion) of Chinese goods, fuelling trade war worries with Beijing.
Another perceived safe haven during market turmoil, the Swiss franc, also got a boost from the news. It was up as much as 0.3% against the dollar to 0.9917 francs.
China’s commerce ministry said Beijing will fight back firmly with “qualitative” and “quantitative” measures if the United States publishes an additional list of tariffs on Chinese goods, accusing Washington of launching a trade war.
The yuan slid to a low of 6.4490 to the dollar at one point, its weakest since January 15.
“The latest headlines from Trump are pushing investors to risk-off mode,” said Shintaro Ikeshima, chief manager of forex and financial products trading division at Mitsubishi UFJ Trust and Banking Corp.
“Although many think this might be another bluff from Trump, markets are likely to stay nervous to trade-related headlines for now.”
The Australian dollar sank to a one-year low of A$0.7391 against the d as the U.S.-China trade spat escalated and base metal prices slid.
The Canadian dollar weakened to a one-year low of C$1.3237 overnight, before paring some of its losses on Tuesday, as investors worried about Canada’s trade feud with the United States.
“As China hawks, like (Robert) Lighthizer and (Peter) Navarro, appear to have gained power within the Trump administration lately, an all-out trade war now seems more inevitable,” said Yasunari Ueno, chief market analyst at Mizuho Securities.
“As long as the hawks remain in power, this is going to remain as a key source of concern in the medium- to long- term.”
The euro bounced back slightly to $1.1638 after hitting a two-week low of $1.1541 on Friday, but the common currency remained under pressure due to a dispute in Germany’s governing coalition and expectations the European Central Bank will hold interest rates steady into 2019.
Chancellor Angela Merkel’s Bavarian allies may defy her by implementing a plan to limit immigration at the German border and risk destabilising her three-month-old coalition.
Still, trade was generally subdued with the focus turning to a three-day ECB forum in Sintra, Portugal, through Wednesday. ECB President Mario Draghi, chief economist Peter Praet, and others will speak at the forum later on Tuesday.