Asia markets rally as China’s yuan defies Trump dollar warning

Asian markets advanced Friday, with Shanghai gaining two percent as China’s weak yuan currency defied US President Donald Trump’s criticism of a strong dollar and Fed rate hikes.

Trump, in part of an interview aired by US television network CNBC, broke with the long-established executive branch practice of not commenting on the Federal Reserve’s decisions out of respect for its independence.

“I’m not thrilled,” Trump told the network in an interview excerpt aired Thursday. “Because we go up and every time you go up they want to raise rates again.”

Trump also suggested that higher interest rates left the United States at a disadvantage compared to the European Union, China and Japan, allowing their currencies to weaken as the dollar strengthens.

Fears are growing over a potential trade war, after Trump’s move to impose hefty import taxes on steel and aluminium from the EU, Canada and Mexico, in addition to levies on goods from China worth tens of billions of dollars, sparked retaliatory tariffs.

“Currency is now part of the trade war folks,” said Greg McKenna, chief market strategist at AxiTrader.

“And it is worth pondering whether this is a President who is going to break with 25-30 years of tradition in not interfering in Fed policy deliberations going forward.

“What I saw in that brief excerpt is a President who is going to drive his trade and tariff policy forward regardless of outside objections,” McKenna added.

– Weak yuan –
The dollar index fell immediately after the remarks were broadcast and a stronger yen saw Tokyo shares edge down 0.3 percent on Friday.

But China’s yuan largely continued its steady decline against the dollar on Friday, providing Beijing with a buffer against the punitive tariffs, and Shanghai soared two percent by the end of the day.

The yuan bounced back slightly to around 6.79 to the dollar after falling below that earlier in the session.

The yuan’s fall provides “a significant offset to the loss in export competitiveness for Chinese exporters due to higher US tariffs”, Rajiv Biswas, chief Asia economist with IHS Markit, told AFP.

“The (yuan’s) slide against the US dollar will substantially cushion the impact on Chinese exporters from the planned next round of US tariffs.”

Hong Kong gained 0.8 percent while Singapore and Sydney advanced 0.4 percent.

Europe’s main markets diverged at the start of trading Friday, with London inching up 0.1 percent while Paris slipped 0.1 percent and Frankfurt fell 0.2 percent.

In Washington, automakers and suppliers at a public hearing on Thursday pleaded with Trump’s administration to reject tariffs on vehicle imports, which they say could cripple domestic manufacturing and cause job losses.

Meanwhile in Brussels, EU Trade Commissioner Cecilia Malmstrom said the EU would “think out of the box” in a bid to find a solution, but she warned officials were preparing to respond with what she called “rebalancing measures” should the US follow through with the auto tariffs.

An EU source told AFP the retaliatory levies could be worth 10 billion euros ($11.5 billion).

– Key figures at 0800 GMT –
Tokyo – Nikkei 225: DOWN 0.3 percent at 22,697.88 (close)

Hong Kong – Hang Seng: UP 0.8 percent at 28,224.48 (close)

Shanghai – Composite: UP 2.0 at 2829.27 (close)

London – FTSE 100: UP 0.1 percent at 7,687.86 (open)

Dollar/yen: UP at 112.45 yen from 112.40 yen at 2100 GMT

Pound/dollar: FLAT at $1.3017

Euro/dollar: UP at $1.1648 from $1.1647

Oil – Brent Crude: UP 51 cents at $73.09 per barrel

Oil – West Texas Intermediate: UP 50 cents at $69.96 per barrel

New York – Dow: DOWN 0.5 percent at 25,064.50 (close)