(Bloomberg) -- The offshore yuan extended losses with regional peers, as China and the US slapped tariffs on each others’ exports as the trade war came to life.
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The offshore yuan slid as much as 0.3% while currencies sensitive to China’s growth, including the Australian and New Zealand dollars, tumbled about 0.7%. China levied a tax on some products imported from the US and started a probe into Google on anti-trust law breaches, just after Washington imposed a 10% tariff on all Chinese goods.
China Hits Back at Trump With Tariffs on US Goods, Google Probe
The move shows trade tensions between the world’s largest two economies are escalating, further pressuring a China recovery that’s already weighed by a prolonged housing crisis and weak consumption. It’s dealing a blow to investor confidence in risk-sensitive assets in Asia Pacific, as China has been an anchor of market stability and the region’s growth engine.
The Hang Seng China Enterprises Index trimmed its advance to 2.4% in the Hong Kong afternoon Tuesday, from nearly 4% in morning trading. Other Asian currencies like the Thai baht and the Indonesian rupiah pared their gains. The Mexican peso dropped 0.3%.
“Unsurprisingly, a risk off tone has taken hold of markets, with the yuan weakening and causing spillover into other Asian currencies,” said Khoon Goh, head of Asia research at ANZ Banking Group. “If there is no news of any deferral, we will see a further selloff in Asian asset markets, with the focus back on tomorrow’s fix.”
Looking ahead, currency traders are waiting for Wednesday’s daily reference rate for the yuan, with some expecting Beijing to relax its tight grip on the managed currency amid the worsening trade conflicts. China’s domestic markets will re-open after holidays.
China May Loosen Grip on Yuan If Trump Reignites Trade War
Twists and turns in President Trump’s trade policies have whipsawed global markets since his election, with the dollar jumping to multi-year highs against the likes of Aussie, kiwi and the yuan before paring gains. Wall Street banks, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., say there is still plenty of money to be made buying the greenback amid market uncertainty.
On Tuesday, Beijing announced 15% levies on coal and liquefied natural gas and 10% on oil and agricultural equipment from the US. The government also declared export control on tungsten-related materials.