China's Yuan Reverses Course, Rises Against Dollar

China's Yuan Reverses Course, Rises Against Dollar

Beijing will retaliate on multiple fronts, probably extending its punitive measures beyond goods to trade in services and to the operations of USA companies on mainland China, Baig said.

Speculation was rife China's central bank was intervening in the currency market to staunch losses and prevent a potentially destabilizing sell-off in the yuan, while stocks came off a searing sell-off in the morning.

Other Asian currencies weakened, especially those such as the Indonesian rupiah that are doubly exposed - to trade and oil prices approaching $80 a barrel. Beijing has recently started trading oil in yuan which is seen as an initial step to challenging the dominance of the United States dollar.

Qi Gao, emerging market Asia currency strategist at Scotiabank, said that while the yuan may consolidate at its current level before July 6, it will remain susceptible to the headlines and is unlikely to rebound markedly.

On Wednesday, the central bank lowered the yuan's daily reference rate by 0.15 per cent to 6.6595 per dollar.

The Hong Kong stock market on Tuesday wrote a finish to the two-day winning streak in which it had advanced nearly 600 points or 2.1 percent.

MSCI's broad index of shares in Asia Pacific excluding Japan edged down by 0.69 percent, but it remained above the nine-month lows it touched last week.

The decline came amid lingering trade concerns as tariffs on billions of dollars in USA and Chinese goods are set to take effect later this week.

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The dollar was steady at 110.895 yen after edging up 0.2 percent the previous day, supported by robust US economic data, higher Treasury yields and a bounce in shares on Wall Street.

The mood was more cheerful in Europe where a pan-European equity index rose half a per cent, the euro firmed marginally and bond yields rose after German Chancellor Angela Merkel struck the deal with her Bavarian conservative coalition partners.

The dollar was down 0.2 percent to the yen at 111.35 while the euro traded up 0.1 percent at $1.1665 against the euro.

Officials in China, the epicentre of the global trade row, have warned the United States that the ti-for-tat tariffs on each other's goods will ultimately prove detrimental for American businesses and jobs. They point to the chaos caused in Chinese and global markets by sharp falls in the currency in 2015 and early 2016.

US bond yields rose slightly amid the easier mood but concern about the trade row has helped push the gap between two- and 10-year yields to the narrowest since 2007.

Investors are also keeping an eye on the Reserve Bank of Australia's (RBA) policy meeting later on Tuesday for any mention of the US-China trade tensions.

The Australian dollar, which is considered a liquid proxy for China-related risk, took heart from solid domestic retail sales data and edged up to $0.7404, moving away from an 18-month trough around $0.7311.

Oil prices climbed on Tuesday after Libya declared force majeure on some of its supplies, with Brent crude rising 0.83 per cent to US$77.94 per barrel and West Texas Intermediate (WTI) crude was up 0.87 per cent to US$74.58 a barrel.

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