LONDON: China's yuan and the Australian dollar regained some poise on Tuesday after US President Donald Trump suggested trade talks with Beijing could yet make headway.
The Chinese currency sank to a 2019, low of 6.92 on Monday after Washington and Beijing increased tariffs on each other's goods.
It broke a six-day losing streak on Tuesday, rising 0.25% as broader sentiment also stabilised after Trump said he expected Sino-US trade negotiations to be successful.
China would be likely to intervene to stop any yuan plunge through 7 to the dollar and could sell its vast holdings of Treasuries as a negotiating tactic against Washington.
Analysts are trying to gauge what the net effect of permanent US tariffs on Chinese imports would be on the dollar.
The only obvious impact on currencies is elevated risk aversion which tends to benefit conventional safe havens such as the Swiss franc and the Japanese yen.
"Trade wars do not benefit the dollar. If you look at (how) the yen/dollar pair reacted to China announcing tariffs on US goods it was clearly not positive for US assets," said Viraj Patel, a currency strategist at Arkera, a financial technology firm.
The Australian dollar firmed a tenth of a percent to $0.6952 after brushing its lowest since early January earlier in the session.
The Aussie is often seen as a proxy for Chinese growth because of Australia's export-reliant economy and China being the main destination for its commodities.
The euro rose 0.15pc to $1.1238.
"The euro has been resilient despite the latest bout of trade tensions and it's probably down to people who were short euros vs emerging market currencies and are now buying euro back and unwinding euro hedges," said Stephen Gallo, European head of FX strategy at BMO Capital Markets in London.
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