FOREX-Yen struggles on trade woes, Aussie surges after surprise RBA hold

By Rae Wee

SINGAPORE, July 8 (Reuters) - The yen fell broadly on Tuesday after U.S. President Donald Trump reiterated that he plans to impose 25% tariffs on goods from Japan and South Korea in the latest development of his chaotic trade war.

In Australia, the Aussie AUD=D3 surged after the country's central bank defied market expectations and left its cash rate steady at 3.85%.

Trump on Monday began telling trade partners – from powerhouse suppliers like Japan and South Korea to minor players – that sharply higher U.S. tariffs will start August 1, but he later said that he was open to extensions if countries made proposals.

The announcement rattled investors and left the mood downbeat in Asia on Tuesday.

The yen JPY=EBS fell to a two-week low to 146.44 per dollar early in the session before recovering some losses.

The Japanese currency also sank to a one-year trough against the euro EURJPY= and hit its lowest against the British pound GBPJPY= in eight months.

Prime Minister Shigeru Ishiba said on Tuesday that he would continue negotiations with the U.S. to seek a mutually beneficial trade deal.

"The Japanese government is expected to continue tariff negotiations, but with the Upper House election scheduled for July 20, the bar for reaching an agreement within the month appears high," said economists at Morgan Stanley MUFG Securities.

The South Korean won KRW= fared better than its Japanese counterpart, rising 0.7% to 1,366.35 per dollar, recovering from its 1% fall on Monday.

South Korea said it planned to intensify trade talks with the United States.

"There is still a lot of uncertainty as to where tariff rates will eventually settle and which countries will get what rates, so uncertainty about the global economy is still high and that will keep investors on edge for the time being," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"This is just the start and we'll get more headlines out for sure over the coming days."

Other currencies, meanwhile, gained some ground on Tuesday, after sliding in the prior session when the dollar rebounded.

The euro EUR=EBS was up 0.34% to $1.1747 after having slid 0.67% on Monday, while sterling GBP=D3 edged up 0.24% to $1.3635.

The European Union will not receive a letter from the United States setting out higher tariffs, EU sources familiar with the matter told Reuters on Monday, and is eyeing possible exemptions from the U.S. baseline levy of 10%.

Against a basket of currencies, the dollar =USD last stood at 97.29, holding to some of its 0.5% gain from the previous session.

RBA STUNS MARKETS

The Aussie AUD=D3 last traded 0.8% higher at $0.6544, having advanced more than 1% in a knee-jerk reaction to the RBA's decision to stand pat on rates.

The move came as a shock for markets that had confidently wagered on a cut, with the central bank saying that the board "judged that it could wait for a little more information" to confirm that inflation was slowing.

A monthly inflation report had the closely-watched trimmed mean measure hitting 2.4% in May, a 3-1/2 year low and coming under the midpoint of the target band of 2-3%. That prompted many economists to bring forward their rate cut call to July from August.

The labour market, however, remained resilient , which argues against the RBA rushing into stimulatory policy settings. The unemployment rate has been hovering at 4.1% for over a year now.

Elsewhere, the New Zealand dollar NZD=D3 was last up 0.32% at $0.6021.

China's yuan briefly weakened to a two-week low against the dollar on renewed investor worries over U.S. tariffs, but it recouped early losses after major state-owned banks stepped in to support the currency.