· The dollar rose near an 11-month high against the Chinese yuan and the Australian dollar tumbled after the U.S. said it would slap tariffs on an extra $200 billion of imports from China, sharply escalating tensions between the world's two biggest economies.
The news threw U.S.-China trade war worries back into the spotlight just days after Washington imposed 25 percent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of U.S. exports to China.
The offshore Chinese yuan fell as low as 6.6918 per dollar , down more than 0.5 percent from late U.S. levels and edging near its 11-month low of 6.7344 touched on July 3.
The Australian dollar slipped 0.6 percent to $0.7417 from this week's high of $0.7484, which was its highest levels in more than three weeks.
· The euro fell 0.1 percent to $1.1731 against the U.S. dollar while the dollar index rose marginally to 94.201.
The yen had strengthened in earlier Asian trading but fell back and was flat versus the dollar at 111.03 yen. The dollar had hit a seven-week high of 111.355 yen on Tuesday.
· "With the announcement from the U.S on the Chinese tariffs, the reaction on the policy side from China will be the key event to watch in the coming days," said Shinichiro Kadota, senior FX strategist for Barclays (LON:BARC) in Tokyo.
"If China does react with further escalation in tariffs, the U.S. equity market as well as the dollar-yen or Australian dollar could face further downward pressures," he said.
· "Because Trump talked about the $500 billion figure, it was not a complete surprise. Yet markets will inevitably react to these types of news headlines," said Kyosuke Suzuki, director of forex at Societe Generale (PA:SOGN).
"Since the new tariffs won't be in place for two months, markets could soon calm down, although we will have to see how share markets, especially Chinese shares, will react to this," he said.
· “The dollar has become the main destination for safe-haven investors,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by email from Copenhagen. “Geopolitical risk is on the rise, bonds and stocks have sold off and yet gold continues to drift lower.”
· The Trump administration raised the stakes in its trade dispute with China, threatening 10 percent tariffs on a list of $200 billion worth of Chinese imports, sending stocks lower and prompting Beijing to warn it would be forced to respond.
China’s commerce ministry said on Wednesday it was “shocked” and would complain to the World Trade Organisation, but did not immediately say how it would retaliate. In a statement, it called the U.S. actions “completely unacceptable”.
· "Investment decisions are being postponed because there is no certainty around the trade relationships," said Derry, the CEO of the Institute for Supply Management. "And that has a real immediate negative impact on the US economy, because rather than making capital investment decision we're just postponing them. That capital expenditure is not being made, we're not adding to production capacity."
· "US tariff policy and lack of predictability, along with the threat of trade wars, is causing general business instability and is a drag on growth for investments," one manufacturer of electrical equipment said.
· A series of surveys released over the past few weeks indicate that companies are growing concerned that the trade fight could hurt their bottom lines, drive up costs, or make it difficult to operate.
On Monday, the latest ISM Manufacturing Purchasing Managers Index showed that while business in the sector remained strong, businesses had worries going forward.
"Demand remains robust, but the nation's employment resources and supply chains continue to struggle," said Timothy Fiore, the chair of ISM's survey committee. "Respondents are overwhelmingly concerned about how tariff-related activity is and will continue to affect their business."
· Neil Dutta, the head of US economics at Renaissance Macro Research, also pointed to the soaring cost of consumer appliances as evidence the tariffs were starting to drive up costs.
"Even though core commodity CPI has been deflating, there have been pockets of tariff related pressure," Dutta said in an email.
Over the past three months, he said, CPI for household appliances was up 15.7% on a seasonally adjusted annual rate.
And companies are seeing the cost of raw materials rise as well.
· Tom Derry, the CEO of the Institute for Supply Management, told Business Insider that business contacts were already starting to shift their decision-making because of the higher prices.
· Tuesday's threat from the U.S. of a round of 10 percent tariffs on an additional $200 billion worth of Chinese imports could deliver a major blow to China's export sector if it takes effect.
The new list shows that Washington is targeting key Chinese manufacturing export industries, said Rajiv Biswas, Asia Pacific chief economist at IHS Markit. By listing potential tariffs on goods including refrigerators, cotton, and steel and aluminum products, the Trump administration is going after China's electronics, textiles, metal products and auto parts industries.
“China’s export sector will therefore suffer a significant deterioration in export competitiveness to the US compared to other emerging markets’ manufacturing exporters, such as Vietnam, South Korea, Thailand, Bangladesh, Mexico and Brazil,” he added.
· China stands on the right side of history in defending multilateralism, its foreign ministry said on Wednesday, after U.S. President Donald Trump’s administration threatened 10 percent tariffs on $200 billion worth of Chinese imports.
· President Donald Trump had strong words for Germany at a NATO summit in Brussels Wednesday, saying it was "a captive" of Russia.
He added that it was "very inappropriate" that Germany had made gas and oil deals with Russia, saying the country should increase their defense spending immediately.
· Oil prices fell on Wednesday, with Brent dropping by more than $1 at one point, after U.S. President Donald Trump threatened to levy new trade tariffs on China.
Brent crude futures LCOc1 were down 65 cents, or 0.8 percent, at $78.21 a barrel by 0627 GMT, having fallen to as low as $77.60. U.S. crude CLc1 was down 43cents, or 0.6 percent, at $73.68.
· With WTI crude prices down -1.20% so far for Wednesday, support is thin from the last swing low at the 73.00 key level, while last week's bottom at 72.20 remains nearby. A bullish turn will have to break the week's current high near 74.75 before crude traders can make a push for the year's current high at 75.35.
Reference: Reuters, Business Insider, CNBC, FXStreet, DailyFX
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