SINGAPORE, July 24 — The safe-haven yen advanced to a one-month high today as deteriorating Sino-US relations heightened investor anxiety, while a surging euro put the beleaguered dollar on track for its worst week in a month.
China has said it “must” retaliate after the US ordered its Houston consulate to shut this week, amid allegations of spying. The editor of China’s Global Times said on Twitter that Beijing will announce countermeasures today and ask one US consulate to close.
Earlier yesterday US Secretary of State Mike Pompeo said Washington and its allies must use “more creative and assertive ways” to press the Chinese Communist Party to change its ways, calling it the “mission of our time.” While trading volumes were lightened by a public holiday in Japan, the palpable tensions were enough to rouse the yen from a range it has kept for weeks.
The yen rose 0.3 per cent to 106.51, its strongest since late June. The Australian and New Zealand dollars were also off from multi-month highs and the Chinese yuan struggled for headway.
“The general concern is that any escalation in US-China tensions is bad and is putting the trade deal at risk,” said Kim Mundy, an FX analyst at the Commonwealth Bank of Australia in Sydney.
“If we see China retaliating today, our view is that Aussie and the other growth-linked commodity currencies can fall,” she said, with a dip likely to shove the Aussie back in the 68 cent to 70 cent range it held for several weeks.
The Australian dollar drifted higher to US$0.7112, and is up about 1.7 per cent for the week, but roughly 1 per cent below a 15-month high touched on Wednesday.
The New Zealand dollar was at US$0.6641, just under a seven-month high of US$0.6690 touched yesterday.
The safe-haven Swiss franc also hit a four-month peak of 0.9243 per dollar. Weaker-than-expected US employment data had rattled US markets overnight.
Farewell, Chengdu?
Sino-US ties have deteriorated over issues ranging from the novel coronavirus pandemic, which began in China, to Beijing trade and business practices, its territorial claims in the South China Sea and its clampdown on Hong Kong.
A tit-for-tat consulate closure is shaping as among the most likely Chinese reply to the Houston consulate eviction.
A source told Reuters on Wednesday that China was considering shutting the US consulate in Wuhan.
The Chinese yuan, a barometer of Sino-US relations, fell overnight after the South China Morning Post reported that the US consulate in Chengdu may be shuttered.
The yuan last sat at 7.0058 per dollar. Other Asian currencies from the South Korean won to the Thai baht and Singapore dollar were also gently pressured.
Elsewhere the tearaway euro remained a tower of strength since busting through chart resistance in the afterglow of Europe’s leaders agreeing on a coronavirus rescue package.
It has gained 1.6 per cent this week, its best since late June, and 3.4 per cent for the month so far to sit at US$1.1615, just below a 21-month high hit overnight.
Sterling hung on to early-week gains at US$1.2749.
Besides China’s next move, investors are looking to a slew of Purchasing Managers Index figures due across Europe and the US later today for a read on economic recovery progress.
Focus is also on the next US fiscal rescue package, which is deadlocked in Congress while a month-end deadline looms as some unemployment benefits are due to expire.
“The concern is that a failure to get this away will impact consumer sentiment at a time when US data is starting to miss the mark,” said Chris Weston, head of research at Melbourne brokerage Pepperstone. — Reuters
