Yen gets brief lift as China cancels trade talks, releases white paper

SYDNEY: The safe-haven Japanese yen blipped briefly higher yesterday as investors reacted to news China had cancelled trade talks with the United States, just as the latest round of two-way tariffs kicked in.

The trade- exposed Australian dollar went the other way, taking an early hit after China also summoned the US ambassador in Beijing and postponed military talks in protest against a US decision to sanction a Chinese military agency.

Beijing then released a white paper on the trade dispute saying it would seek a reasonable outcome, while also describing US tactics as ‘bullying’.

President Donald Trump’s second round of 10 per cent tariffs covering US$ 200 billion of Chinese exports, and counter tariffs from China took effect yesterday.

The early currency moves came in very thin conditions with Japan and China on holiday and were mostly reversed as the session wore on.

The dollar soon recovered to 112.58 yen, having been as low as 112.28 at one stage.

The Aussie crawled up to 81.87 yen, after an initial drop to 81.34, but was still down 0.27 per cent on the US dollar at US$ 0.7270.

The euro held at US$ 1.1745, with dealers reporting some relief that German Chancellor Angela Merkel’s ruling coalition resolved a dispute over the country’s scandal-tainted spymaster on Sunday, ending a threat to the six-month- old government.

The dollar was a fraction firmer against a basket of currencies at 94.237 as investors look ahead to an almost certain rate hike from the Federal Reserve on Wednesday.

A run of upbeat US economic data has also led markets to price in a much greater chance of a hike in December as well, which should give the currency a fatter interest rate advantage over its major counterparts.

Yet the dollar’s yield buffers are already the widest in decades and it still failed to sustain a rally, being at much the same levels that it was in May.

Marshall Gittler, chief strategist at ACLS Global, suspected investors were concerned about how the US could continue to fund its trade and budget deficits.

“Trump’s ‘ easy-to-win’ trade war doesn’t seem to have done much yet to rectify the US trade imbalance with China or any other country for that matter,” he noted. — Reuters