"Ironically of course the tariffs imposed by both sides will hit consumers, so as in all great contests this is turning into a test of endurance, with the U.S. and China each looking to derive the maximum impact from the increased charges in a bid to hit their opponent where it hurts", said Beauchamp.
There has been a slight turnaround in the global stock market after a fall on Monday due to the escalating trade war between the USA and China.
Asian stocks were poised to track a rebound in United States equities as President Donald Trump said he had an ongoing dialogue with China, assuaging some concern about the deteriorating trade war. Traders are also responding to the relative calmness following yesterday's tariff retaliation by China to similar action by the US on Friday.
Rising tensions between the two countries has also increased fears that China may sell its vast holdings of Treasuries as punishment or as a negotiation tactic against the United States.
A "safe zone" for the yuan fluctuation is between 6.6 to 7 per dollar, said Zhang Ming, a researcher with the Chinese Academy of Social Sciences. This was seen as the central bank's lenient stance on yuan weakness.
"Trade issues will continue to cap gains in Asia, but if anything, the incidents on opposite sides of Saudi Arabia will bring home how vulnerable the flow of oil is from the Middle East", said Halley.
If China decides to dump their US treasuries, it will result in upward pressure on American interest rates.
The dollar index against a basket of six major currencies was flat at 97.318. The central bank wants to preventthis fromhappening, mainly through stabilising the daily fixing of the exchange rate, so as to send a signal to both onshore and offshoremarkets that the yuan is stable. "There needs to be a balance between the two". "People are also speculating whether China will roll out more policy support measures". "China is concerned that a sharp depreciation could destabilise confidence and lead to more capital outflows", UBS economist Tao Wang said in a note. -China trade negotiations will be successful.
In the currency market, the offshore yuan climbed on Trump's bullish remarks on prospects for a trade deal. As per analysts, the Yuan will not weaken by a large amount even in the future.
However, the consensus in the forex market is that the yuan faces deprecation pressure against the dollar in the short term. "If there is no indication that they will, you could see equities take a bit of a pounding this week", Mr Rai said. This article is strictly for informational purposes only. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.