Most Asian currencies fell on Tuesday as concerns about a trade war over new Canadian tariffs on China mounted, while some weak inflation data held back the Japanese yen’s advance.
The dollar’s recovery from 13-month lows also weighed on regional markets, as rising geopolitical tensions in the Middle East, Libya and Ukraine increased demand for the safe-haven greenback. The trade also limited the yen’s losses.
But continued expectations of a US interest rate cut continue to push traders to favour regional currencies over the dollar, while regional units have maintained some of their recent gains.
Yen’s rise stumbles after weak corporate inflation
The Japanese yen rose 0.1% to 144.78 yen on Tuesday after approaching 143 yen earlier this week.
The yen’s rally was halted after the U.S. consumer price index – a measure of producer inflation – came in slightly weaker than expected, raising some doubts about how much inflation will rise this year.
The yen had rebounded sharply late last week after Bank of Japan Governor Kazuo Ueda reiterated the central bank’s plans to raise interest rates. Expectations of lower interest rates in the United States also boosted the yen’s value.
But weak inflation data has raised questions about how much room the Bank of Japan has to continue raising interest rates. The focus this week is on a monetary policy meeting scheduled for Friday.
Chinese yuan falls after Canada imposes import tariffs
The Chinese yuan rose slightly after Canada said it would impose 100% tariffs on Chinese electric car imports, following similar moves from the United States and Europe.
The country will also impose a 25% tariff on Chinese steel imports.
Although electric vehicle exports to Canada account for a relatively small share of China’s electric vehicle sales, Beijing has still condemned the move. This has heightened concerns about retaliatory tariffs from China, which could in turn spark a renewed trade war with the West.
The tariffs further cloud the outlook for the Chinese economy, which is already suffering from slowing growth and contraction.
Dollar Weak, Rate Cut Bets Remain
Gold and silver prices rose slightly in Asian trading, after rising 0.2% from their lowest levels in 13 months on Monday.
But the outlook for the dollar remained clouded by bets on a U.S. rate cut, following cautious signals from the Federal Reserve. That notion represents a brighter outlook for Asian currencies, with traders divided over a 25- or 50-basis-point rate cut in September.
But most regional units were subdued on Tuesday. The South Korean won rose 0.2 percent, while the Singapore dollar moved little.
The Australian dollar rose 0.2%, outperforming its Asian counterparts thanks to some gains in commodity prices.
The Indian rupee rose 0.1% and returned to record highs.