Asian Currencies Weaken as Canadian Trade Tariffs Heighten Trade War Fears

Asian currencies broadly weakened on Tuesday amid escalating trade tensions between China and Canada. New Canadian tariffs on Chinese imports sparked fears of a renewed trade war, causing a ripple effect across regional markets.

Japanese Yen Rally Stalls After Soft Inflation Data

The Japanese yen (USD/JPY) edged up by 0.1% to 144.78, slightly retreating from near 143 yen earlier in the week. The yen’s recent rally lost momentum due to weaker-than-expected corporate services price index data, raising doubts about inflationary pressures in Japan. This soft inflation reading casts uncertainty over the Bank of Japan’s capacity to continue raising interest rates, despite recent signals from Governor Kazuo Ueda.

Chinese Yuan Weakens as Canada Imposes New Tariffs

The Chinese yuan (USD/CNY) saw a slight uptick in response to Canada’s announcement of a 100% tariff on Chinese electric vehicle imports and a 25% tariff on steel imports. Although these exports represent a minor portion of China’s sales, the move heightened concerns over potential retaliatory measures from Beijing, which could exacerbate trade tensions with Western nations. This development adds to the existing challenges facing China’s economy, including sluggish growth and deflationary pressures.

Dollar Recovers from 13-Month Lows Amid Geopolitical Tensions

The U.S. dollar index rose marginally in Asian trading, recovering from 13-month lows as geopolitical tensions in the Middle East, Libya, and Ukraine drove safe-haven demand. However, ongoing speculation about U.S. interest rate cuts continued to weigh on the greenback’s outlook. Despite this, the dollar’s strength limited losses in the Japanese yen, which remained under pressure due to the weaker inflation data.

Regional Currencies Show Mixed Performance

Regional currencies exhibited mixed performance on Tuesday. The South Korean won (USD/KRW) and the Australian dollar (AUD/USD) both rose by 0.2%, with the latter benefiting from gains in commodity prices. The Singapore dollar (USD/SGD) remained relatively stable, while the Indian rupee (USD/INR) edged up by 0.1%, nearing record highs.

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