Asia FX weakens amid trade jitters with China; Yen rally stalls by Investing.com

Investing.com– Most Asian currencies weakened on Tuesday as new Canadian trade tariffs on China heightened fears of a trade war, while a rally in the Japanese yen was stymied by some weak inflation data.

A rebound in the dollar – from 13-month lows – pressured regional markets as heightened geopolitical tensions in the Middle East, Libya and Ukraine prompted a safe-haven demand for the greenback. This trade also limited losses in the yen.

But lingering expectations of a US interest rate cut still kept traders in favor of regional currencies against the dollar, while regional units held on to some recent gains.

Yen rally stalls after weak corporate inflation

The Japanese yen pair rose 0.1 percent to 144.78 yen on Tuesday, after hovering near 143 yen earlier this week.

The yen’s rally stalled after a measure of producer inflation read slightly weaker than expected, raising some doubts about how much inflation will rise this year.

The currency bounced back late last week after Bank of Japan Governor Kazuo Ueda reiterated the central bank’s plans to raise interest rates. Expectations of lower US interest rates also supported the yen.

But the weak inflation data raised questions about how much room the BOJ has to keep raising rates. This week focuses on , until Friday.

Chinese yuan weakens as Canada issues import tariffs

The Chinese yuan rose slightly after Canada said it would impose a 100% import tariff on electric vehicle imports from China, following similar measures in the US and Europe.

The country will also impose a 25 percent tariff on steel imports from China.

While electric vehicle exports to Canada make up a relatively small share of China’s electric vehicle sales, Beijing has still condemned the move. This has raised concerns about retaliatory tariffs from China, which could in turn spark a renewed trade war with the West.

Tariffs further darken the outlook for China’s economy, which is already experiencing slow growth and deflation.

The dollar fell, rate cut bets persist

Both rose marginally in Asian trade after rising 0.2 percent from 13-month lows on Monday.

But the outlook for the dollar remained clouded by bets on a US rate cut after dovish signals from the Federal Reserve. That notion portends a better outlook for Asian currencies, with traders split on a 25- or 50-basis-point discount in September.

But most regional units were shut down on Tuesday. The South Korean won pair rose 0.2%, while the Singapore dollar pair moved little.

The Australian dollar rose 0.2 percent, outperforming its Asian peers on some gains in commodity prices.

The Indian rupee rose 0.1% and returned to record highs.