US put currency-manipulator tag on China, yuan stabilizes | CMC Markets Daily Commentary

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The US-China trade war has likely escalated into a currency war, following yuan’s surprising move above 7.0 mark on Monday and subsequent US labelling China as currency manipulator for the first time since 1998. The offshore yuan CNH weakened further against USD to the 7.12 area in early morning session, and has since rebounded to the 7.08 area. The stabilizing yuan helped to alleviate the selloff in Asian markets.
Meanwhile, currency market movements showed signs of improvement in risk sentiment. AUD/JPY – a gauge of risk taking – has rebounded slightly to the 72.03 area, ending a seventh straight session of selloff. USD/JPY has also rebounded the 0.6% to 106.17 area. AUD/USD is moving higher for the first time in twelve trading sessions. Gold price retraced from recent peak and consolidated at around US$ 1,466, suggesting the demand for safe-haven assets has moderated today.
The outlook, however, remains hazy for risk assets – equities, indices and emerging market currencies, due to elevated trade risk and a resulting weakening global growth prospect. Worst case scenario, severe equity market turmoil could dampen consumer spending and therefore lead to weaker corporate earnings. A negative economic feedback loop could start to develop from here.
Technically, risk assets have almost all entered into oversold territory due to quick unwinding activities recently. Therefore, a technical rebound is possible, although mid-term technical trends have been broken down for major indices.
Today, the Reserve Bank of Australia (RBA) is going to announce its interest rate decision at 12:30pm Singapore time. Expectation is on hold but traders will watch on policy maker’s tone about the next interest rate cut. Technically, AUD/USD has been severely oversold and thus due for a technical rebound. The Relative Strength Index (RSI) has returned to above the 30 mark, suggesting more upside towards the 0.680-0.687 area.
USD/CNH
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