Asia FX retreats, dollar steadies as Trump tariffs approach

Investing.com-- Most Asian currencies moved in a flat-to-low range on Tuesday, while the dollar steadied from recent losses as traders hunkered down before the imposition of increased trade tariffs under U.S. President Donald Trump. 

The Chinese yuan clocked mild losses, with further declines stymied by government support as Trump said he will impose 20% tariffs against the country from later on Tuesday. The Japanese yen was an outlier among its regional peers, strengthening amid increased safe haven demand. 

Risk appetite was also soured by reports that the White House had paused all military aid to Ukraine- a move that could mark a worsening in the long-running Russia-Ukraine war. 

Dollar steadies with Trump tariffs on tap 

The dollar index and dollar index futures moved little in Asian trade on Tuesday after clocking overnight losses. 

Trump said he will impose 20% tariffs on China and 25% tariffs on Canada and Mexico, starting from 00:00 ET (05:00 GMT) on Tuesday. China was seen considering more retaliatory measures, while Canada and Mexico decried the move.

The Canadian dollar and Mexican peso both touched their weakest levels in one month on Tuesday. 

Trump’s tariffs- which are aimed at furthering U.S. trade and geopolitical interests- stand to benefit the dollar. They are also expected to potentially increase U.S. inflation, given that they will be borne by U.S. importers. 

But the dollar took little support from this notion, as recent data showed a deterioration in U.S. consumer confidence, sparking concerns over an economic slowdown. 

Increased speculation over a massive U.S. overhaul in trade policy, akin to the 1985 Plaza Accord- also weighed on the dollar, given that such an overhaul is likely to target dollar weakness to boost U.S. trade. 

Yuan steady as 20% tariffs loom, yen benefits from haven demand

The Chinese yuan’s USD/CNY pair steadied around 7.2857 yuan, with declines in the currency being limited by government support.

China was seen exploring a host of retaliatory trade measures against the U.S. over the increased tariffs, including moves targeting agricultural goods. Beijing had in February imposed retaliatory tariffs against the U.S., as well as export controls on key materials, such as rare earths. 

In Japan, the yen firmed on some safe haven demand, with the USD/JPY pair falling 0.1%. The pair had briefly came in sight of a three-month low. 

Gains in the yen were stymied by softer-than-expected capital spending data, while other readings showed an unexpected increase in Japan’s unemployment rate.

Among broader Asian currencies, the Australian dollar’s AUD/USD pair slid 0.3%, given that the currency is highly sensitive to trade. 

Losses in the Aussie came even as the minutes of the Reserve Bank of Australia’s February meeting showed policymakers non-commitment towards more rate cuts, after a 25 basis point reduction in February. 

Other data showed Australian consumer spending remained strong, with retail sales growing more than expected in January. 

The Singapore dollar’s USD/SGD pair was flat, as was the South Korean won’s USD/KRW pair. 

The Indian rupee’s USD/INR pair rose 0.1%.