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The Chinese currency sank to a 2019 low of 6.92 on Monday in response to Washington and Beijing raising tariffs on the other’s goods.
But the yuan managed to break a six-day losing streak on Tuesday and rose 0.25% as broader sentiment stabilised after Trump said he expected Sino-U.S. trade negotiations to be successful.
China would be likely to intervene to stop any plunge through 7 against the dollar and could sell its vast holdings of Treasuries as a negotiation tactic against the United States.
Analysts are trying to gauge what the net effect of permanent U.S. tariffs on Chinese imports would be on the dollar.
The only obvious impact on currencies is elevated risk aversion which tends to benefit conventional safe havens such as the Swiss franc and the Japanese yen.
“Trade wars do not benefit the dollar. If you look at the yen/dollar pair reacted to China announcing tariffs on U.S. goods it was clearly not positive for U.S. assets,” said Viraj Patel, a currency strategist at Arkera, a financial technology firm.
The Australian dollar managed to firm a tenth of a percent to $0.6952 after brushing its lowest since early January earlier in the session.
The Aussie is often seen as a proxy for Chinese growth because of Australia’s export-reliant economy and China being the main destination for its commodities.
The euro rose 0.15% to $1.1238.
“The euro has been resilient despite the latest bout of trade tensions and it’s probably down to people who were short euros vs emerging market currencies and are now buying euro back and unwinding euro hedges,” said Stephen Gallo, European head of FX strategy at BMO Capital Markets in London.