July 4, 2018 / 5:53 AM / 18 days ago

REFILE-FOREX-Dollar takes a breather as trade concerns linger, yuan steadies

(Corrects typo in fifth paragraph)

* Dollar softer amid lingering trade war fears

* China central bank to keep yuan stable, helping cool-off market

* Canada dollar gains on manufacturing data, higher oil prices

* Mexico peso jumps on soothing words from president-elect

* U.S. holiday seen thinning trade

By Tomo Uetake

TOKYO, July 4 (Reuters) - Major currencies marked time on Wednesday and the Chinese yuan recovered from 11-month lows after authorities took steps on Tuesday to calm financial markets rattled by trade war worries.

Both the yuan and Chinese equity markets have been on edge ahead of July 6, when U.S. tariffs on $34 billion worth of Chinese goods take effect. Beijing has said it will retaliate with tariffs on U.S. products.

The onshore yuan last traded at 6.6299 against the dollar, up 0.21 percent on the day, after opening at 6.6365. At one point on Tuesday the yuan hit 6.7204 per dollar, its weakest level since early August, before sharply rebounding on reassuring remarks from Yi Gang, Governor of the People’s Bank of China (PBOC).

Governor Yi said in a statement on the PBOC website that the central bank was closely watching foreign exchange fluctuations and would seek to keep the yuan at a stable and reasonable level. Cross-border capital flows were under control, he noted.

A Chinese central bank adviser was also quoted as saying authorities did not expect significant yuan depreciation, which also helped the yuan reverse its early losses to move back into positive territory.

The dollar was down 0.15 percent against a basket of six major currencies at 94.528 ahead of the U.S. Independence Day holiday on Wednesday, after notching up three consecutive months of gains.

“Since the dollar and the Swiss franc softened while the Mexican peso and some other emerging currencies gained, it may appear like a risk-on day,” said Kengo Suzuki, chief forex strategist at Mizuho Securities.

“But if you look around, stocks fell and safe-haven bids for U.S. Treasuries climbed. After all, nothing has been resolved on the Sino-U.S. trade disputes.”

The dollar was down 0.1 percent versus the yen at 110.465 while the euro traded up 0.1 percent at $1.1664.

Investors are awaiting the publication on Thursday of minutes from the Federal Reserve’s June meeting, and Friday’s U.S. jobs data, for validation of policymakers’ forecasts for two more rate hikes this year.

Valuations also remain supportive of the dollar, with its trade-weighted basket still below long-term averages.

The Australian dollar, which is considered a liquid proxy for China-related risk, took heart from solid domestic retail sales data and edged up to $0.7404, moving away from an 18-month trough around $0.7311.

The Canadian dollar strengthened against greenback on Tuesday as oil prices rose to 3-1/2-year highs and domestic manufacturing data supported the view that the Bank of Canada will hike interest rates next week.

The Canadian dollar edged up to C$1.3113, its highest level in 2-1/2 weeks.

Growth in the Canadian manufacturing sector accelerated in June to its fastest pace in more than seven years, the IHS Markit Canada Manufacturing Purchasing Managers’ Index showed on Tuesday.

U.S. crude oil futures climbed above the $75 mark for the first time in 3-1/2 years overnight and hovered near that level on Wednesday. Oil is one of Canada’s major exports.

The Mexican peso rose sharply on Tuesday after Andres Manuel Lopez Obrador, the newly elected president, sought to soothe investors - magnifying a global bounce in emerging market assets.

Obrador, who cruised to victory at the weekend as the first leftist elected president since one-party rule ended in 2000, has worked to dispel fears he might be averse to private investment when he takes office on Dec. 1.

The peso firmed 2.6 percent overnight, by far the biggest gainer among Latin American currencies, as positive sentiment on Mexico helped magnify an emerging markets rally.

“We think the latest developments go in line with our view that Lopez Obrador will be more pragmatic than some domestic market participants expect,” said Tania Escobedo, New York-based Latam FX Strategist at RBC Capital Markets.

“We think there is space for a rally of Mexican peso in the transition period, as local retail investors that have been overweight cash and U.S. dollar should start shifting back to the peso given the opportunity cost in yield.” (Reporting by Tomo Uetake; Editing by Sam Holmes and Eric Meijer)

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