· The Chinese yuan crossed a closely watched barrier against the dollar on Monday following another escalation in the trade war between Beijing and Washington.
In the afternoon of Asian trading hours, the onshore Chinese yuan changed hands at 7.0304 against the dollar, while the offshore yuan traded at 7.0807 against the greenback. The Chinese currency last breached the 7 level against the dollar during the global financial crisis in 2008, according to Reuters.
The sharp weakening in the Chinese currency came after U.S. President Donald Trump unexpectedly announced fresh tariffs on Beijing last week that are set to take effect from Sept. 1.
“I think this is clearly a retaliation that in the past China has refrained from doing,” Claudio Piron, co-head of Asia rates and foreign exchange strategy at Bank of America Merrill Lynch Global Research, told CNBC’s “Street Signs” on Monday.
Responding to Trump’s move, China’s foreign ministry said on Friday that the country does not want a trade war with the U.S. but is not afraid of fighting one.
· The U.S. dollar was on the back foot against traditional safe-haven currencies.
The dollar fell to as low as 105.80 yen, its weakest since its January flash-crash, and last stood at 106.07 yen, down 0.5%.
The euro also rose 0.15% to $1.1122, extending its recovery from a two-year low of $1.1027 touched on Thursday.
· EUR/USD is flashing green, possibly due to trade tensions and the resulting dovish Fed expectations. The upside looks limited as trade tensions could hurt Germany's economy. The entire German bond market is about to turn negative for the first time.
The EUR/USD pair is currently trading above the 200-hour moving average (MA) of 1.1124.
The pair charted a bullish hammer on Thursday and closed above that hammer candle's high of 1.1096 on Friday, confirming a bullish reversal candlestick pattern.
That said, the pair is yet to invalidate the bearish lower highs pattern with a move above 1.1162 (July 31 high). That would confirm a bearish-to-bullish trend change.
A break above 1.1162 looks likely with the bullish divergence of the moving average convergence divergence histogram.
· President Donald Trump overruled the adamant objections of nearly his entire trade team when he ordered the imposition of 10% tariffs on China’s remaining $300 billion of exports to the United States, according to The Wall Street Journal, citing people familiar with the matter.
A nearly two hour debate ensued but the president stood by his argument and eventually his advisors helped him draft a Twitter post on the new tariffs, the Journal reported.
· The latest escalation in tensions between the U.S. and China has reduced the chances that both sides could reach a trade deal this year, a former American diplomat said on Monday.
Trump’s latest actions are “a step away from a solution,” said Frank Lavin, U.S. ambassador to Singapore from 2001 to 2005. He added that it’s “unlikely” both sides would reach a deal by the end of this year.
“This tariffs war has gone on for over a year, so you see a deterioration in environment, a deterioration in trust and communication,” Lavin, who’s now chief executive at business consultancy Export Now, told CNBC’s “Street Signs.”
Despite Trump’s tariff threat, some analysts have predicted that the president still wants a deal with China — because that could help him win a second a term in the White House.
Many analysts have said a large part of Trump’s re-election chances hinge on the strength of the U.S. economy. An escalation in the U.S.-China trade dispute would derail the American economy, said Shane Oliver, head of investment strategy and chief economist at Australian investor AMP Capital.
“Recessions and rising unemployment have historically killed the re-election of sitting presidents (Hoover, Ford, Carter and Bush senior) and for this reason we remain of the view that a deal will ultimately be reached,” Oliver wrote in a Friday report.
· Hong Kong was bracing for major disruptions to business on Monday as a general strike threatens to paralyze parts of the Asian financial center, with more than 100 flights already cancelled, amid a broader anti-government campaign.
Carrie Lam, Hong Kong’s embattled leader, said Monday that she believes her city is on the verge of “a very dangerous situation.”
· Iran has seized a foreign tanker in the Gulf carrying 700,000 liters of fuel, Iranian state TV said Sunday, citing the country’s Revolutionary Guards.
Seven sailors on board have also been detained, according to Revolutionary Guard commander Ramezan Zirahi, who was quoted by Al Mayadeen TV.
“The IRGC’s naval forces have seized a foreign oil tanker in the Persian Gulf that was smuggling fuel for some Arab countries,” state TV quoted Zirahi as saying.
“It carried 700,000 liters of fuel. Seven sailors onboard of the tanker, who are from different nationalities, were detained.” The tanker’s origin is unclear. The U.S. Navy’s Fifth Fleet in Bahrain said it did not have sufficient information to confirm the reports.
· Oil prices fell on Monday amid renewed global economic growth concerns after U.S. President Donald Trump vowed to escalate the trade war with China with more tariffs, which would likely limit fuel demand in the world’s two biggest crude consumers.
Brent crude futures LCOc1 had dropped 92 cents, or 1.5%, to $60.97 a barrel by 0640 GMT.
U.S. West Texas Intermediate (WTI) crude futures CLc1 declined 73 cents, or 1.3%, to $54.93 a barrel.
Both crude benchmarks fell last week, with Brent down 2.5% and U.S. crude falling 1%.
Asian equity markets dropped to a six-month low on Monday while gold prices climbed as investors sought safe-haven assets because of the ratcheting up of the trade dispute between China and the United States, the world’s two largest economies.
Reference: CNBC, Reuters, FXStreet
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