By Stanley White
TOKYO (Reuters) – The yen held onto gains on Wednesday as weaker-than-expected Chinese economic data reinforced the view that resolving the trade war was a long way off even if U.S. President Donald Trump had delayed some additional tariffs.
The offshore yuan remained lower against the dollar after China’s closely watched industrial output rose in July at the slowest pace in more than 17 years. The onshore yuan rose against the dollar, taking its cue from a stronger fixing.
News the United States would delay some tariffs supported Asian stocks, but optimism in the currency market quickly faded on broader concerns there are no quick solutions to the trade row, which economists say is dragging on China’s economy and threatening global growth.
Increasingly violent clashes between protesters and police in Hong Kong, worries about Britain’s exit from the European Union, and Middle East tensions mean risk aversion could quickly flare up again and roil major currencies.
“The mid-term trend is for yen gains, because the United States has not changed its tough stance on China,” said Shuntaro Ikeshima, chief manager of forex and financial products trading at Mitsubishi UFJ Trust and Banking Co.
“There was a lot of short-covering overnight, but in Asia the market quickly ran into real demand to buy yen. Once you added the Chinese data, this managed to keep the yen firm.”
The dollar pared some of its losses but was still down 0.3% at 106.48 yen
The Australian dollar fell 0.2% to 72.45 yen
Against the offshore yuan
On Tuesday, U.S. President Donald Trump backed off of his Sept. 1 deadline for 10% tariffs on remaining Chinese imports, delaying duties on cellphones, laptops and other consumer goods, in the hopes of blunting their impact on U.S. holiday sales.
Still, trade negotiations between the United States and China have progressed in fits and starts, so many investors and analysts have scaled back expectations for a resolution in the near term.
China’s industrial output in July rose 4.8% from a year earlier, which was below the median estimate for a 5.8% year-on-year increase and marked the slowest growth since February 2002, data showed on Wednesday.
Retail sales and fixed-asset investment in July also grew less than forecast, highlighting concerns the trade war is damaging the health of the world’s second-largest economy.
The dollar index <.DXY>, measuring the greenback against a basket of six currencies, was little changed at 97.755 after jumping 0.4% on Tuesday.
Hong Kong’s airport resumed operations on Wednesday, rescheduling hundreds of flights that had been disrupted this week as protesters clashed with riot police in a deepening crisis in the Chinese-controlled city.
Ten weeks of increasingly violent clashes between police and pro-democracy protesters, angered by a perceived erosion of freedoms, have plunged the Asian financial hub into its worst crisis since it came under Chinese rule from Britain in 1997.
European data on consumer prices and GDP is due from Europe later on Wednesday and could shape the near-term direction of the common currency.
Sterling was little changed at $1.2061
Britain will release consumer price data later on Wednesday, but uncertainty about how Britain will exit the European Union has clouded the outlook for the Bank of England’s monetary policy.
(Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh).
(Editing by Neil Fullick and Jacqueline Wong)