The Chinese yuan declined along with the Australian dollar and other risk-sensitive currencies on Tuesday. Peter Navarro, White House trade adviser, declared that the trade deal with China is over, causing currencies to fall.
The Chinese yuan tumbled down by 0.35% to 7.0815 per dollar in offshore trading. Meanwhile, the Australian dollar dropped by 0.5% to $0.6874, losing earlier gains. At the same time, the New Zealand dollar plunged by 0.65% to $0.6440.
Even though there were few details on actual policy implications, Navarro’s comments renewed fears that the already tense relations between the United States and China may worsen and disrupt capital flows and supply chains. He linked the breakdown in part to Washington’s anger over China’s not sounding the alarm earlier about the virus outbreak.
However, Daisuke Uno, chief strategist at Sumitomo Mitsui Bank, stated that it’s not clear precisely what it is over. Still, today’s market reaction suggests that after riding on optimism on the economy, FX markets are now ready to test the pessimistic side of the story.
Until today, traders supported riskier currencies. Markets preferred to cling to hopes of economic recovery from the pandemic despite surging infections in several regions of the world.
After some of the big cities in the United States, such as New York and Toronto, eased lockdowns and reopened their economies, investors bought into riskier bets even though that came against setbacks elsewhere in the fight to contain the pandemic.
What about the U.S. dollar?
The World Health Organization announced a record rise in global novel coronavirus cases on Sunday. There were spikes in infections in southern and western U.S. states, along with Brazil.
After such news, demand on safe-havens rose again. The U.S. dollar gained 0.16% to 97.189 against a basket of currencies.
On the other hand, the safe-haven yen was little moved on Tuesday, stuck at 106.96 yen per dollar. The euro declined a tad, to $1.1252. Traders are waiting for European business activity surveys due later today.
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