Most currencies firm as US-China trade tensions pressure US dollar

April 4, 2018

BENGALURU (April 4): Most emerging Asian currencies edged higher on Wednesday as the dollar was shackled by worries that escalating US-China trade tensions could dent global growth and drag on the US economy.

 

The US currency has lost about 2.2% against a basket of six major currencies so far this year, with trade tensions adding to earlier concerns that Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage.

 

The Trump administration announced 25% tariffs on US$50 billion of annual imports from China, covering around 1,300 industrial technology, transport and medical products. China's commerce ministry immediately warned it was preparing countermeasures of equal intensity.

 

Against a basket of six major currencies, the dollar last traded at 90.133, having edged back from Tuesday's near two-week high of 90.275.

 

"Risk sentiment has improved overnight, at least for today, as investors put the fear of an escalating trade war on the back burner. Local currencies are trading with a very robust correlation to risk which is being driven by trade rhetoric," said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

 

"US-China trade tensions will continue to weigh on regional bourses and causing local currencies, for the most part, to trade in tight ranges on lower inflow."

 

Among Asian currencies, India's rupee was the biggest gainer, up as much as 0.2% to a one-week high.

 

The Philippine peso and the Indonesian rupiah posted marginal gains, while the Thai baht and the Malaysian ringgit remained little changed.

 

The Singapore dollar inched up as much as 0.1% before creeping down slightly.

 

Nine of 15 analysts in a Reuters poll said their baseline expectation is for the Monetary Authority of Singapore (MAS) to tighten its exchange-rate based policy at its semiannual policy review, expected to be announced in mid-April.

 

If the MAS tightens policy next month, it would mark the central bank's first such move since April 2012 when it increased the slope of the band slightly.

 

"My view is that the trade war will keep the local central bank on a neutral track. I think MAS will tighten policy this year, but will take a wait-and-see approach to trade, and less than convincing inflation signals no shift for now," said Innes.

 

South Korea's won was the biggest loser in the region, down as much as 0.4%.

 

Innes said the won was paring gains ahead of this week's key US non-farm payrolls data and expects other regional currencies to reverse out some risk ahead of data on Friday.

China's yuan was off as much as 0.1%.

 

Markets in Taiwan were closed for a holiday.

 

YUAN

 

The Chinese yuan eased against the dollar after the central bank set a weakened official guidance rate, with traders keeping a watchful eye on the escalating US-China trade spat.

 

In the spot market, the onshore yuan opened at 6.2895 per dollar and was changing hands at 6.2911 at midday, 51 pips weaker than the previous late session close.

The following table shows rates for Asian currencies against the dollar at 0455 GMT.

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