TOKYO: The dollar fell from seven-week highs against the yen and the Australian dollar stumbled after Washington announced a plan to slap tariffs on $200 billion of imports from China, escalating tensions between the world's two biggest economies.
The news, first reported by Bloomberg in early Asian trade when the currency market's liquidity falls to the lowest levels of the day, prompted knee-jerk selling of riskier assets against less vulnerable currencies.
The dollar dropped to 110.85 yen in early Asian trade from around 111.25 yen in late U.S. trade. It had hit a seven-week high of 111.355 yen earlier on Tuesday.
The yen tends to be bought at times of economic and political stress because Japan's status as the world's largest credit nation suggests any repatriation by Japanese investors were likely to exceed those from Japan by foreign investors.
The Australian dollar slipped to $0.7424 from this week's high of $0.7480, which was its highest levels in more than three weeks.
U.S. Trade Representative Robert Lighthizer said the United States would impose tariffs of 10 percent on additional Chinese imports worth $200 billion, just days after its tariffs on $34 billion Chinese goods took effect.
Administration officials said a two-month process would allow the public to comment on the proposed tariffs before the list is finalised.
The move came after U.S. President Donald Trump said last week the United States may ultimately impose tariffs on more than $500 billion worth of Chinese goods - roughly the total amount of U.S. imports from China last year.
"Because Trump talked about the $500 billion figure, it was not a complete surprise. Yet markets will inevitably react to these types of news headlines," said Kyosuke Suzuki, director of forex at Societe Generale.
"Since the new tariffs won't be in place for two months, markets could soon calm down, although we will have to see how share markets, especially Chinese shares, will react to this," he said.
The offshore Chinese yuan fell to 6.6633 per dollar from around 6.6310 before the news, though it still kept some distance from 11-month low of 6.7344 touched last week. - Reuters