Dollar takes a breather as trade concerns linger

China's PBOC Seeks to Calm Yuan Equities ahead of US Tariff Deadline

China's PBOC Seeks to Calm Yuan Equities ahead of US Tariff Deadline

The benchmark CSI300 Index ended the day down 1.3 percent, and the Shanghai Composite Index was off 0.94 percent.

Deutsche Bank strategist Perry Kojodjojo said he does not believe China would "weaponize" its currency as part of retaliation against the USA, given the potential costs.

The head of China's central bank says he's closely watching the recent slide in the value of the yuan against the US dollar, but the country's economic fundamentals remain strong.

"Recently the foreign exchange market has shown some volatility and we're paying close attention to that", Yi said in a statement responding to a request by the China Securities Journal posted on the central bank's website.

Hong Kong's markets were closed on Monday for a public holiday to mark the 21st anniversary of the former British colony's return to Chinese rule.

At one point on Tuesday the yuan hit 6.7204 per dollar, its weakest level since early August, before sharply rebounding on reassuring remarks from Yi Gang, Governor of the People's Bank of China (PBOC).

Currently, the currency pair is trading at 6.6330 - up 0.24 percent on the day, but well below the high of 6.6390 seen on Friday. At 0542 GMT it was trading at 6.7010.

He acknowledged that in a trip to Shanghai last week, he "detected increasing alarm over trade tensions and a lot of nervousness about a full blown trade war, which comes at a bad time for China, where the economy is undergoing a downdraft at precisely the same time the United States is seeing a sharp upturn".

Analysts expect China to reciprocate, marking the official start of a trade war.

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A trader at a Chinese bank said the PBOC's signal was clear, but the market would closely watch and react to developments ahead of July 6. Europe's tech and energy sectors rose 0.5 and 1 percent respectively.

Short-covering rallies should not be confused with trend reversals, and provided traders continue to view escalating trade tensions will reduce the USA trade deficit, thereby benefiting the dollar, gold will continue to remain out of favour.

The market was caught in the well oversold territory after the PBoC, for the time being, stemmed the relentless USA dollar rally after avowing to keep the RMB exchange rate stable.

RBA Governor Philip Lowe said "one uncertainty regarding the global outlook stems from the direction of worldwide trade policy in the United States", cautioning that the recent U.S.

The peso firmed 2.6 percent overnight, by far the biggest gainer among Latin American currencies, as positive sentiment on Mexico helped magnify an emerging markets rally.

All this should set the stage for Asia markets to open lower, as investors continue to ponder the negative regional impact of trade tension and growing concerns about global growth prospects.

Support: 6.6263 (session high), 6.6046 (previous day's low), 6.60 (psychological support).

Energy stocks have been boosted by Brent crude's rise past $78 a barrel, McPherson noted.

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