Yuan sinks past 7 per dollar to over decade low as trade tensions heat up

China's yuan tumbled more than 1% on Monday to 11-year lows on mounting fears over a sharp escalation in the US-China trade war, sparking a sell-off in other currencies in the region.

The broadening fallout of the trade dispute saw investors rushing into perceived safe-haven assets, with the Japanese yen rising to a seven-month peak.

The

yuan broke through 7 per dollar , which some market players have regarded as a major support level, falling to as low as 7.1097 per dollar in offshore trade and 7.0424 to the dollar onshore.

“This could well be the biggest moment for the yuan this year. The impact of US-China trade is turning out to be very big,” said Masashi Hashimoto, senior currency analyst at MUFG Bank.

“Looking at the mid-point, the People's Bank of China is trying to stem the yuan's fall,” he said. “The PBOC doesn't look like it is trying to use a weaker yuan to counter US trade pressure. The yuan's fall seems to be stemming from panicky selling.”

The yuan last stood down 1.4% at 7.0793 offshore, and 1.1% at 7.0166 onshore. It was the first time the yuan traded above 7 per dollar since May 2008.

The sharp fall came after Beijing vowed on Friday to fight back against US President Donald Trump's abrupt decision to slap 10% tariffs on the remaining $300 billion in Chinese imports, a move that ended a month-long trade truce.

The plunging yuan knocked off many currencies in the region. The Australian dollar slipped 0.5% to $0.6770, hitting a seven-month low of $0.6748. The currency wasn't far off its Jan. 3 flash-crash low of $0.6715.

The Korean won fell 1%, hitting a three-year low of 1,218.3 per dollar while the new Taiwan dollar fell more than 0.5% to a two-month low of 31.61 to dollar.

The US dollar was on the back foot against traditional safe-haven currencies.

The dollar fell to as low as 105.80 yen, its weakest since its January flash-crash, and last stood at 106.07 yen, down 0.5%.

The euro also rose 0.15% to $1.1122, extending its recovery from a two-year low of $1.1027 touched on Thursday.

On Friday, the closely-watched US employment data showed nonfarm payrolls increased by 164,000 jobs in July, fewer than the prior month, and wages increased modestly.

The data cemented expectations that the Federal Reserve will cut interest rates again in September after it delivered its first rate reduction in more than a decade last month.