* U.S.-China trade war escalates, making investors seek
safety
* Markets worry whether currency is the trade dispute's new
front
* South Korea's won badly affected amid spat with Japan
(Adds context on yuan falling below key level, updates prices)
By Nikhil Nainan
Aug 5 (Reuters) - Currencies across Asia suffered sharp
losses on Monday as China's yuan crossed the 7 per dollar level
for the first time in over a decade, following escalation of the
Sino-U.S. trade war to new heights.
The yuan CNY=CFXS sank nearly 1.5% to 7.042, breaching the
key level for the first time since the global financial crisis
in 2008. The closely-managed currency's move lower sets the
stage potentially for a new front in the trade dispute.
The People's Bank of China "has effectively weaponised the
exchange rate, even if it is not proactively weakening the
currency with direct FX intervention," Julian Evans-Pritchard,
Capital Economics senior China economist said in a note.
The build-up of hostilities comes after U.S. President
Donald Trump late last week declared he would slap 10% tariffs
on $300 billion in Chinese imports, ending a month-long trade
truce.
"We had anticipated that the PBOC would eventually devalue
the currency in response to trade tensions but hadn't expected
it to come quite this soon," Evans-Pritchard added.
Uncertainty engulfed Asian markets in general on Monday,
with flows moving to safer bets, with the Japanese yen JPY=
strengthening 0.6%.
Chris Weston, head of research at Pepperstone brokerage in
Australia, said in a note the market "really does not need
worries about a capital flight in China at this point in time
and a subsequent tightening of financial conditions in the
Chinese economy".
Trade-reliant economies such as South Korea took major hits
on Monday. The won KRW=KFTC touched a three-year low of
1,218.3 per dollar, while the Taiwan dollar TWD=TP dropped
0.7%.
Also weighing on the won is its diplomatic spat with Japan,
which tightened controls in July on exports to South Korea. This
escalated a row over wartime forced labourers and sparking a
boycott by South Korean consumers of Japanese products and
services. "The South Korean won is least favoured because of its
country's spat with Japan over the latter's export ban," DBS
said in a note.
India's rupee INR=IN also fell to its weakest level since
early March, ahead of a central bank meeting on Wednesday, at
which DBS expects a 25 basis point rate cut.
Indonesia reported its weakest economic growth in two years
in April-June, though the 5.05% figure matched market forecasts
and did not move the rupiah IDR= , which was 0.7% lower at
14,270 to the dollar for the day. The Thai and Philippine central banks have policy meetings
this week amid a global easing wave as growth falters.
Thailand's baht THB=TH , the strongest Asian currency this
year, was marginally lower while the Philippine peso PHP=
dropped 0.4% to 51.84 a dollar.
CURRENCIES VS U.S. DOLLAR
Change on the day at 0459 GMT
Currency Latest bid Previous day Pct Move
Japan yen 106.020 106.58 +0.53
Sing dlr 1.382 1.3765 -0.41
Taiwan dlr 31.609 31.376 -0.74
Korean won 1214.000 1198 -1.32
Baht 30.840 30.8 -0.13
Peso 51.840 51.64 -0.39
Rupiah 14270.000 14175 -0.67
Rupee 70.425 69.59 -1.19
Ringgit 4.173 4.155 -0.43
Yuan 7.029 6.9420 -1.24
Change so far in 2019
Currency Latest bid End 2018 Pct Move
Japan yen 106.020 109.56 +3.34
Sing dlr 1.382 1.3627 -1.41
Taiwan dlr 31.609 30.733 -2.77
Korean won 1214.000 1115.70 -8.10
Baht 30.840 32.55 +5.54
Peso 51.840 52.47 +1.22
Rupiah 14270.000 14375 +0.74
Rupee 70.425 69.77 -0.93
Ringgit 4.173 4.1300 -1.03
Yuan 7.029 6.8730 -2.22