Investing.com — Most Asian currencies fell on Tuesday as Canada imposed new trade tariffs on China, raising fears of a trade war, while the Japanese yen's gains were hampered by weakness in some inflation measures.
The dollar's recovery from a 13-month low also weighed on regional markets as rising geopolitical tensions in the Middle East, Libya and Ukraine boosted demand for the greenback as a safe haven. The trade also helped limit the yen's decline.
However, traders still preferred Asian currencies to the dollar amid persistent expectations of a U.S. interest rate cut, helping them maintain their recent gains.
Yen appreciation stagnates due to weak corporate inflation
The yen rose 0.1% to 144.78 yen on Tuesday after approaching 143 yen earlier this week.
The yen's strength stalled after the producer price index (PMI) came in slightly weaker than expected, raising questions about how much inflation will accelerate this year.
The yen rebounded sharply last weekend after Bank of Japan Governor Kazuo Ueda reiterated the bank's plans to raise interest rates. Expectations of lower U.S. interest rates also boosted the yen.
But weak inflation data raised questions about how much room the BOJ has to keep raising interest rates. The focus this week is on Friday's release of its inflation rate forecast.
China's yuan falls as Canada imposes import tariffs
The yuan strengthened slightly after Canada announced it would impose 100% import tariffs on electric vehicles imported from China, following similar measures in the United States and Europe.
The country also plans to impose a 25% tariff on steel imports from China.
While EV exports to Canada account for a relatively small portion of China's EV sales, Beijing still condemned the move, which has raised fears of retaliatory tariffs from China and potentially sparking a new trade war with the West.
The tariffs further cloud the outlook for a Chinese economy already struggling with slowing growth and deflation.
Dollar slumps, interest rate cut expectations continue
and both currencies rose modestly in Asian markets after rising 0.2% from 13-month lows on Monday.
But expectations of a cut in U.S. interest rates have clouded the dollar's outlook following dovish signals from the Federal Reserve. This has brightened the outlook for Asian currencies, with traders split on whether to cut rates by 25 or 50 basis points in September.
But most regional currencies were weak on Tuesday, with the South Korean won rising 0.2 percent while the Singapore dollar was little changed.
The Australian dollar rose 0.2 percent, outperforming Asian currencies on rising commodity prices.
The Indian rupee rose 0.1%, again approaching a record high.
