Asia FX weak, dollar near 3-yr low on trade war fears; yen soars on haven demand

Investing.com-- Most Asian currencies weakened on Friday, while the dollar slid to a three-year low as markets feared the economic fallout of a rapidly escalating U.S.-China trade war.

The Japanese yen remained an outperformer, soaring to its strongest level in more than six months on increased demand for safe havens. The yen’s USD/JPY pair slid nearly 3% to 143.47 yen- its lowest level since late-September. 

The Chinese yuan recovered from its weakest level in over 17 years, following an unexpectedly strong midpoint fix by the People's Bank. But markets were preparing for more yuan weakness, as Beijing gears up for a bitter trade war with the United States. 

Dollar near 3-yr low as US, China exchange trade tariffs 

The dollar index and dollar index futures slid around 0.7% each in Asian trade, extending sharp overnight declines. The dollar index also slid below 100 points, coming within spitting distance of a low last seen in April 2022. 

The greenback was battered by heightened concerns over a U.S. recession, especially as Washington and Beijing slapped each other with outsized tariffs. President Donald Trump on Thursday hiked tariffs against China to an unprecedented 145%, while China’s 84% tariffs on the U.S. also took effect. 

Traders fretted over the impact of the tariff volley, given that the U.S. still imports several hard-to-replace materials from China. While Trump did postpone plans for reciprocal trade tariffs against other countries by 90 days, a trade war with China still holds potentially dire implications for American importers and exporters. 

The dollar was also dented by softer-than-expected consumer inflation data for March, which drove some bets that the Federal Reserve will cut interest rates sooner than later, especially amid increased economic pressure from a trade war. 

But the central bank has struck a largely cautious stance over Trump’s policies. 

A sustained slide in U.S. Treasury prices, amid doubts over the U.S. economy under Trump, also added to pressure on the dollar. 

Chinese yuan rebounds from 17-yr low on strong PBOC fix 

The Chinese yuan’s onshore USD/CNY pair rose 0.1% on Friday after falling sharply from an over 17-year high.

The yuan’s offshore USD/CNH pair steadied after racing to record highs earlier in April.

The PBOC unexpectedly set a stronger yuan midpoint fix on Friday after six straight sessions of weaker fixes, reflecting some discomfort in Beijing with persistent yuan weakness.

But China is widely expected to let the yuan weaken further in the coming weeks, given that a cheaper yuan makes Chinese exports more attractive. This measure is expected to help offset some headwinds from a bitter trade war with the United States.

Any Chinese monetary easing- to bolster the economy against trade headwinds- is also expected to weigh on the yuan. Analysts were seen increasing their odds of more Chinese interest rate cuts in the coming months. 

Broader Asian currencies all retreated amid heightened concerns over a trade war between the world’s biggest economies.

The Taiwan dollar’s USD/TWD pair rose 0.6%, while the Indian rupee’s USD/INR pair added 0.2%.

The Australian dollar was an outlier, with the AUD/USD pair rallying 1.5% in an extended rebound from COVID-era lows hit earlier this week.