Investing.com — Most Asian currencies weakened Tuesday as new Canadian tariffs on China raised fears of a trade war, while a rally in the Japanese yen was hampered by some soft inflation data.
A recovery in the dollar – from a 13-month low – also put pressure on regional markets, as heightened geopolitical tensions in the Middle East, Libya and Ukraine fueled safe-haven demand for the dollar. This transaction also limited losses in the yen.
But continued expectations of US rate cuts still led traders to favor regional currencies over the dollar, while regional units held on to some recent gains.
The yen’s rally is stalling after soft corporate inflation
The Japanese yen pair rose 0.1% to 144.78 yen on Tuesday, after closing close to 143 yen earlier this week.
The yen’s rally stalled after a gauge of producer inflation was slightly weaker than expected, raising some doubts about how much inflation will increase this year.
The currency recovered sharply late last week after Bank of Japan Governor Kazuo Ueda reiterated the central bank’s plans to raise interest rates. Expectations of lower US interest rates also supported the yen.
But the soft inflation data raised questions about how much room the BOJ has to keep raising rates. The emphasis this week is on , expected Friday.
The Chinese yuan weakens as Canada imposes tariffs on imports
The Chinese yuan pair rose slightly after Canada said it will impose a 100% tariff on imports of Chinese electric vehicles, following similar measures from the US and Europe.
The country will also impose a 25% tariff on Chinese steel imports.
Although electric vehicle exports to Canada make up a relatively small share of China’s EV sales, Beijing still denounces the move. This heightened concerns about retaliatory tariffs from China, which in turn could lead to a renewed trade war with the West.
The tariffs further cloud the outlook for China’s economy, which is already struggling with slow growth and deflation.
Dollar subdued, interest rate cuts persist
The and both rose marginally in Asian trading, after rising 0.2% from a 13-month low on Monday.
But the dollar’s outlook remained clouded by bets on US interest rate cuts following dovish signals from the Federal Reserve. This idea offers a brighter outlook for Asian currencies, with traders divided over a 25 or 50 basis point cut in September.
But most regional units were muted on Tuesday. The South Korean won pair rose 0.2%, while the Singapore dollar pair was little moved.
The Australian dollar pair rose 0.2%, outperforming its Asian counterparts thanks to some gains in commodity prices.
The Indian rupee pair rose 0.1% and was back within sight of record highs.
