Currency valuations have long played a role in global trade spats because the goods of countries with weak currencies have a price advantage over those sold from stronger-currency nations. China has weakened the yuan at times in the past but more recently it has engineered a strengthening. Retaliating against the Trump administration by weakening it any time soon is seen as a long shot.
TOKYO: The dollar sagged against its peers on Tuesday as rhetoric from Chinese and U.S. policymakers kept alive concerns about a trade conflict between the world's two largest economies and undermined support for the greenback.
The near-term market focus was on Chinese President Xi Jinping, who is due to deliver remarks at a conference in Boao, China later on Tuesday.
It will be his first public reaction to the tariff standoff and investors are wary about the impact the president's views could have on the broader financial markets.
Global markets took a hit last week as U.S. President Donald Trump upped the ante in a trade dispute with China, reviving investor jitters about the impact a tariff war could have on the world economy.
The dollar was on the defensive against the yen, which tends to draw demand in times of market turmoil and political tensions.
The greenback was 0.05 percent lower at 106.740 yen after posting modest declines overnight. It was headed for its third session of losses versus its Japanese peer.
"We are still at a stage of trade tensions where the United States and China are exchanging threats. Algo-driven accounts react to each development and stir the equity market, in turn impact currencies," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
"Geopolitical risks are also weighing on the dollar against the yen, on concerns that U.S.-Russia relations could worsen over the Syria issue," Ishizuki said.
U.S. President Trump on Monday promised quick, forceful action in response to a suspected chemical weapons attack in Syria, appearing to suggest a potential military response. Trump has castigated Russia for backing Syrian President Bashar al-Assad.
The euro was steady at $1.2324 after rising about 0.35 percent the previous day, when it touched a six-day high of $1.2331.
The common currency was lifted after European Central Bank President Mario Draghi said on Monday that the slide in stock markets this year has not materially impacted euro zone financial conditions, suggesting policymakers remain calm about the recent market volatility.
The dollar index against a basket of six major currencies was little changed at 89.829 after shedding 0.3 percent on Monday.
The Canadian dollar hovered near a six-week peak reached against the dollar overnight on higher oil prices and a business survey from the Bank of Canada that supported expectations for further interest rate hikes.
The loonie was steady at C$1.2703 per dollar and in close reach of C$1.2687, its strongest since Feb. 27 set on Monday.
The Australian dollar, another commodity-linked currency, was a shade higher at $0.7699 after advancing about 0.3 percent overnight. - Reuters
