FX Rate News

China’s offshore yuan and the Australian dollar found their footing again on Tuesday as broader sentiment stabilized after U.S. President Donald Trumpsaid he expected Sino-U.S. trade negotiations to be successful.

Trump said earlier he would meet with Chinese President Xi Jinping at a G20 summit next month. China had announced on Monday it would impose higher tariffs on $60 billion of U.S. goods following Washington’s decision last week to hike its own levies on $200 billion in Chinese imports.

Though analysts said it would take time for volatility to settle completely, risk-sensitive currencies including the offshore yuan and the Aussie held up well following comments from Trump late on Monday that trade talks with China are “going to be very successful.”

Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said the timing of Beijing’s announcement that it would impose higher tariffs on U.S. goods had exacerbated moves in the foreign exchange market during the previous session.

“It seems the timing was probably a surprise so the moves in the currency market were rather large,” Yamamoto said, adding that market participants could also be over-reacting to Trump’s latest trade-related comments.

“Trump said he believes that (the trade talks) will be successful, but success for him isn’t necessarily a success for China,” Yamamoto said.

China’s offshore yuan last gained about a quarter of a percent at 6.8948 per dollar.

The yuan had suffered its steepest one-day decline since late July last year during the previous session, before hitting its lowest versus the greenback since late December early on Tuesday.

The Australian dollar managed to firm a tenth of a percent to $0.6952 after brushing its lowest since early January earlier in the session.

The Aussie is often seen as a proxy for Chinese growth because of Australia’s export-reliant economy and China being the country’s main destination for its commodities.

“Volatility in the market has risen quite a lot. I think it will take time before it will settle,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Ishizuki said he thought it was unlikely that sentiment would deteriorate significantly from here ahead of Trump’s planned meeting with Xi next month.

“Quite a lot of negative news has come out. But with things as they are, those have already been priced in by the market,” he added.

The dollar index against a basket of six rivals held steady at 97.320, having ended the previous session little changed.

Investor focus on Tuesday was also on eurozone industrial production for March and Germany’s ZEW economic sentiment index for May, both due around 0900 GMT.

The euro rose 0.15% to $1.1238. Sterling was a shade higher at $1.2968.

Against the safe-haven yen, the dollar gained a quarter of a percent to 109.60, bouncing in line with the recovery in sentiment after falling as low as 109.15 yen in early trade.

The greenback had touched a more than three-month low of 109.02 yen brushed during the previous session when it shed nearly 0.6%.

Bitcoin, the world’s best-known cryptocurrency, on Monday hit $8,000 on the Bitstamp exchange for the first time since July last year, before retreating slightly. It was last up 1.9% on the day at $7,965.98

China’s yuan was set for its worst daily fall in nine months on Monday as trade negotiations between the U.S. and China ended after President Donald Trumpraised tariffs on Chinese goods.

Currency moves in response to the latest trade hostilities have been muted, but on Monday the yuan fell 0.8% to 6.9040, its weakest since Dec. 27.

Some analysts say it may breach 7 per dollar in coming months, a level last seen during the global financial crisis.

China would probably use its vast currency reserves to stop any plunge through 7 to the dollar, which could trigger speculation and heavy capital outflows.

Investors bid up the yen, which is considered a safe haven in times of stress given Japan’s status as the world’s largest creditor and its huge hoard of assets abroad.

The yen was 0.25% higher at 109.700 yen, near last week’s three-month high of 109.470.

“We’re waiting to see if China retaliates to the latest round of U.S. tariffs … and continue to favor the yen on a short-term basis and expect the market to remain focused on the yuan,” said Chris Turner, an ING currency strategist.

The world’s two biggest economies appeared deadlocked on Sunday. Washington demands changes to Chinese law; Beijing says it won’t swallow any “bitter fruit” that harms its interests.

President Trump and his Chinese counterpart Xi Jinping are likely to meet during a G-20 summit in Japan at the end of June and discuss trade.

The Australian dollar shed 0.3% to $0.6976. A drop below $0.6960 would take the currency, already burdened by a dovish shift by the Reserve Bank of Australia, to its lowest since early January.

The Aussie is sensitive to shifts in risk sentiment and also serves as a proxy for trades related to China, Australia’s largest trading partner.

The dollar index against a basket of six major currencies was flat at 97.318.

The euro edged higher on Friday and is poised for a second consecutive week of gains on growing fears that any escalation in the trade conflict between the United States and China would force U.S. policymakers to cut interest rates.

U.S. President Donald Trump’s tariff increase to 25% from 10% on $200 billion of Chinese goods kicked in on Friday, and Beijing said it would strike back. The two sides are pursuing last-ditch talks to try to salvage a trade deal.

While U.S. and Chinese officials return to the negotiating table later on Friday, investors have quietly ratcheted up bets of a U.S. interest rate cut with markets now roughly expecting one rate hike by the end of 2019.

Athanasios Vamvakidis, an FX strategist at Bank of America Merrill Lynch, said if China retaliated then the threat of a global trade war will affect the outlook of the U.S. economy and increase the chances of a Fed rate cut.

“In this case, the Fed has more room to ease than most other central banks, suggesting eventually a weaker dollar against both the euro and the yen,” he said.

The single currency edged 0.1% higher to $1.1220 on Friday and was on track for a second consecutive week of gains.

Broadly, risk appetite was muted though some of the higher-yielding currencies such as the Australian dollar which was heavily sold earlier this week when Trump unexpectedly ratcheted up trade tensions, gained.

The dollar index measuring the U.S. currency against a basket of six major currencies, of which the euro is a main component, was slightly firmer at 97.43.

Still, trade tensions have had broadly little impact on foreign exchange markets with typical perceived safe-haven assets such as the Japanese yen only gaining 1.2% this week while broader currency market volatility gauges were subdued despite a minor bounce this week.

Elsewhere, the pound held around the $1.30 level after sustaining some losses this week before first quarter British GDP data where expectations are for a 0.5% expansion compared with 0.3% growth in the previous quarter.

The Japanese yen surged to a 3-month high against the dollar on Thursday as investors piled into the safe-haven currency fearing that the U.S.-China trade conflict could escalate.

Two days of trade talks begin in Washington on Thursday and traders are waiting to see whether Chinese and U.S. negotiators can salvage a deal to prevent more U.S. tariff increases.

Currency moves this week in response to a new bout of trade war angst have been fairly muted but Thursday’s jump in the yen – which tends to attract demand in times of political strife and market turmoil – suggested investor nerves are fraying.

The main casualties of the heightened tensions have been the Australian dollar, a proxy for Chinese economic prospects, the U.S. dollar and the offshore Chinese yuan.

The yuan on Thursday fell half a percent to hit a four-month low of 6.838 and was headed for its worst four-day decline in a year.

“It looks very much like a trade deal is almost off the table and that the U.S. will impose new tariffs on Chinese goods tomorrow. Fears in the market are mostly reflected in yuan exchange rates,” said Ulrich Leuchtmann, an FX strategist at Commerzbank.

Unlike previous episodes when the dollar benefited from an increase in trade worries, U.S. President Donald Trump’s latest threat to raise tariffs on Chinese imports have prompted market strategists to focus on the corrosive impact on Washington.

The prospects of an escalation in the conflict has seen the yen gain in recent days.

The currency rose 0.3 percent against the dollar at 109.640 yen, a 3-month high, taking its gains to more than 1 percent so far this month. According to the latest Commodity Futures Trading Commission data, speculators have further raised their net long dollar bets, including those against the yen.

Trump said on Wednesday that China “broke the deal” reached in talks with the United States, and vowed to not back down on imposing new tariffs unless Beijing “stops cheating our workers”.

Shin Kadota, senior strategist at Barclays in Tokyo, said the yen “owes much of its strength to gains made in the cross currency market. ‘Risk on, risk off’ has been the main market driver and the euro has been stuck in range as a result.”

The Japanese yen rallied to a six-week high against the dollar on Wednesday as growing concerns about the trade dispute between China and the United States prompted investors to take shelter in perceived safe-haven assets.

Data out earlier showed China’s trade surplus with the United States, a major irritant for Washington, expanded to $21.01 billion in April from a month ago, a factor that might provoke a hardening stance from U.S. officials.

“The threat of further escalation in the tariff war becomes real again and at the moment, it is just impossible to assign any probability to any scenario, positive or negative,” Societe Generale strategists said in a daily note.

Focus is on trade talks on Thursday and Friday in Washington, where Chinese Vice Premier Liu will try to salvage a deal that would avoid a sharp increase in tariffs on Chinese goods scheduled to take effect on Friday.

The prospects of an escalation rather than a resolution of the spat between the U.S. and China has seen the yen gain in recent days, with the currency up 0.22 percent against the dollar at 110.0 yen, taking its gains to more than 1 percent so far this month.

The New Zealand dollar was the other notable loser overnight after the central bank cut benchmark cash rates to 1.5 percent from 1.75 percent.

The kiwi was last off 0.1 percent, recovering somewhat after falling to $0.6525 in the immediate aftermath of the rate cut, its lowest since last November.

Elsewhere, the euro was up 0.13 percent at $1.1204, but holding within recent ranges as currency traders were still undecided on the inflationary outlook for the euro zone economy and the latest developments on the trade war front.

“The European Central Bank is likely to keep a close eye on the renewed escalation of the trade war as the real economic consequences could be considerable, affecting its monetary policy,” Commerzbank strategists said.

The pound fell for a third day, edging down 0.43 percent to $1.3018.