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Trade War

Trade headwinds roil Asian currencies

Yuan, won and Australian dollar suffer as investors shelter in the dollar

The yuan continues to weaken, suggesting China is content to let it slide for now. (Photo by Akira Kodaka)

TOKYO -- Emerging-market currencies are falling as risk-averse investors pull money out of countries at risk of collateral damage from the U.S.-China trade war.

The yuan fell to 6.72 against the dollar at one point on Thursday, nearing the 11-month low it reached on July 3. China "may be tolerating currency weakness" to sustain exports against a barrage of U.S. tariffs, said Shuji Shirota of HSBC Securities in Japan

The currency selloff is spreading to countries perceived as vulnerable to the trade clash between the world's two largest economies, which escalated with Tuesday's announcement of additional U.S. tariffs on $200 billion worth of Chinese imports .

Currencies of Asian countries that count China among their main trading partners have come under pressure, including the Indonesian rupiah and the Malaysian ringgit. Brazil's real and Russia's ruble also sank as worries about global trade weighed on crude oil, a key export for both countries.

The South Korean won tumbled close to an eight-month low against the dollar on Thursday, when the Bank of Korea downgraded its economic growth forecast for 2018 to 2.9% from 3%.

The central bank expects the trade clash to weigh on exports such as the intermediate goods South Korea sells to China. The tariffs that have been imposed so far will reduce South Korean exports by an estimated 0.05%, according to the bank.

Downward pressure on the Australian dollar also looks likely to grow if trade frictions worsen, analysts say. Rich in coal and iron ore, Australia exported AU$115.9 billion ($85.84 billion) of goods to China in 2017, accounting for 30% of its total exports. A July 3 monetary policy statement by Reserve Bank of Australia Gov. Philip Lowe cited "the direction of international trade policy in the United States" as a source of uncertainty for the global outlook.

Much of the capital flowing out of these countries has shifted to the U.S. despite its central role in the trade dispute. A strong economy and rising interest rates are encouraging investors to buy dollars, said Koji Fukaya of Japan's FPG Securities.

And with inflation indicators exceeding market expectations, the Federal Reserve is widely expected to keep raising rates.

The flight to the dollar has hit even the yen, traditionally a haven in troubled times. The Japanese currency touched a six-month low against the dollar on Thursday.

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