The comments resurrected fears that the tense relations between United States and China may now worsen and disrupt supply chains
The Australian dollar, the Chinese yuan and other risk-sensitive currencies tumbled on Tuesday after White House trade adviser Peter Navarro said the trade deal with China is “over”. Although there were few details on actual policy implications, his comments resurrected fears that already tense relations between United States and China may now worsen and disrupt supply chains and capital flows.
Navarro linked the breakdown in part to Washington’s anger over Beijing’s not sounding the alarm earlier about the coronavirus outbreak. The Australian dollar lost 0.5% to $0.6874, erasing earlier gains while the New Zealand dollar fell 0.65% to $0.6440.
The offshore Chinese yuan dropped 0.35% to 7.0815 per dollar. It’s not clear exactly what is over, but today’s market reaction suggests that after riding on optimism on the economy, markets are now ready to test the pessimistic side of the story, said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank, referring to Navarro’s comments.
Until early Tuesday, risk currencies had been supported and the dollar had been soft as markets clung to hopes of an economic recovery from the pandemic despite rising infections in some parts of the world. Traders bought into riskier bets as some big cities in North America, such as New York and Toronto, eased lockdowns and reopened their economies, though that came against setbacks elsewhere in the fight to contain the coronavirus.
The World Health Organization (WHO) reported a record increase in global novel coronavirus cases on Sunday, with spikes in infections in southern and western U.S. states as well as Brazil. Against a basket of currencies, the dollar gained 0.16% to 97.189.
The safe-haven yen was little moved, stuck at 106.96 yen per dollar. The euro slipped a tad to $1.1252. Investors are now looking to European business activity surveys due later in the day.
Economists expect the euro zone composite flash PMI to rise to 42.4 in June from 31.9 last month as European economies gradually reopen.
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