(July 11): Asian emerging market currencies retreated on Wednesday, after the United States threatened to slap tariffs on another US$200 billion worth of Chinese imports.
Investors fear the escalating trade war between the world's two biggest economies could hit global growth, after the Trump administration raised the stakes overnight, announcing fresh tariffs just days after the last measures took effect on Friday.
China's commerce ministry said it was "shocked" by the latest U.S. action and would complain to the World Trade Organisation, but did not immediately say how it would retaliate.
"Of course, nothing is written in stone, and the tariffs are not set to take effect until September. But none the less, this is a very sobering reality check as to just how fragile sentiment around trade war rhetoric is and should keep markets trading defensively during Asia," said Stephen Innes, head of trading APAC at Oanda.
The news prompted a broad based sell-off in Chinese assets, with the yuan weakenning 0.4% to 6.664 to the dollar, while equity markets tumbled around 2%.
Investors are worried that the trade row will add pressure to the already slowing Chinese economy. Trump had warned he may ultimately impose tariffs on more than US$500 billion worth of Chinese imports, roughly the total amount of U.S. imports from China last year.
The dollar index, which measures the greenback against a basket of six major currencies, was up 0.1% to 94.238.
As a major trading partner in the region, "it comes as no surprise that with fresh selling pressure on the RMB, we are also seeing some spillovers in the Asian currency space as well," said Wei Liang Chang, a FX strategist at Mizuho Bank.
He added that currencies that were sensitive to movements in the yuan, such as the South Korean won, Singapore dollar and Taiwan dollar, were also under pressure.
The won lost the most in the region, falling 0.4%, while the Singapore and Taiwan dollars weakened 0.2% each.
Malaysian c.bank likely to hold rates
Malaysian ringgit slipped 0.1% to 4.025 per dollar, hours before Bank Negara Malaysia's policy meeting where interest rates are expected to remain unchanged.
The meeting marks Nor Shamsiah Mohd Yunus' first as governor, with market players watching closely for any clues on whether she shifts her stance from that of her predecessor.
"The markets will be more focused on forward guidance. Given the political and fiscal struggles ahead, I think it's easy to assume this will not be a hawkish pause," Oanda's Innes said.
The ringgit has gained for four straight sessions in the build up to the meeting and has outperformed its Southeast Asian peers, amid an exodus from emerging markets as rising trade tensions have turned investors risk-averse.
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