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Dollar gains on US tariffs; shares steady and oil drops

The Asian stock markets took the latest twist of President Donald Trump’s tariff announcement on Tuesday in stride, while the dollar remained strong and oil fell.

Wall Street shares fell after Trump sent a letter to 14 countries including Japan and South Korea revealing sharply increased tariffs on imported goods into the United States. He also delayed their implementation until August 1.

Japan's Nikkei opened lower, but then turned positive when Trump said that the deadline was "firm but not 100% solid" and that tariffs could be adjusted for certain countries.

The Aussie Dollar surged when the Reserve Bank of Australia held policy rates at their current level, as expected.

Tapas Strickland is the head of market economy at National Australia Bank. He said that there was a muted reaction from the market to Trump's tariff announcements, as a result of Trump's swift reversal of his "Liberation Day", duties originally set out on 2 April.

Strickland told a NAB podcast that "there's going be a lot volatility" as headlines begin to appear, more letters are released, and the negotiation process really comes to the forefront before the August 1 deadline.

Trump set a 10% cap on all so-called reciprocal trade tariffs until the 9th of July to allow time for negotiations. Two agreements have been made, with Britain, and Vietnam. Washington and Beijing reached an agreement in June on a framework for tariff rates. This restored a fragile truce to their trade war.

Tariffs for Japan and South Korea will now increase to 25% by August 1. The Japanese prime minister Shigeru Shiba described the increase as deeply regrettable, and stated that his country would continue to negotiate with the U.S. Thailand’s finance ministry Pichai Chunhavajira revealed his country was preparing a backup plan to deal the 36% tariff on its exports.

EU sources informed on Monday that the European Union would not receive a letter outlining higher tariffs. After a "good conversation" between Trump and European Commission President Ursula von der Leyen, a spokesperson for the commission said that the EU is still hoping to reach a deal on trade by Wednesday.

The broadest MSCI index of Asia-Pacific stocks outside Japan increased by 0.3%. Japan's Nikkei index rose 0.4% while South Korea's KOSPI increased 1.5%.

After reaching a new two-week high, the dollar gained 0.1% at 145.88yen. The euro increased by 0.3% to $1.1744. The Australian dollar increased by 0.8% to $0.6541.

The RBA kept its cash rate at 3.85%. This was a surprise to markets who had confidently priced a reduction. They said that the majority of board members wanted to wait until more information could be confirmed to confirm the inflation slowdown.

U.S. crude oil fell 0.5% to $66.71 a barrel, after surging almost 2% on Sunday. Spot gold fell 0.2%.

Euro Stoxx futures in the pan-region were down by 0.2%. German DAX was also down by 0.2%. FTSE futures fell 0.4%. (Reporting and editing by Jacqueline Wong, Sonali Paul and Rocky Swift)

(source: Reuters)