September 7, 2018 / 11:43 AM / 19 days ago

FOREX-Dollar trapped in ranges on trade war fears

* Australian dollar skids to 2-1/2 year lows

* EM currency index poised for biggest weekly drop in 3 weeks

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Sept 7 (Reuters) - The Australian dollar skidded to its weakest level in more than 2-1/2 years as fears over an escalation in the trade conflict between the United States and China dominated concerns, while safe-haven currencies such as the franc and yen gained.

With a public comment period for proposed U.S. tariffs on an additional $200 billion worth of Chinese imports ending at 0400 GMT, markets edged lower as investors waited for a fresh salvo to be fired in the ongoing Sino-U.S. trade war.

“The dollar moving in different directions against the Aussie and the yen is typical of a risk-off move as fears of trade war escalation and contagion in emerging markets remain main drivers,” said John Marley, a senior currency consultant at FX risk management specialist SmartCurrencyBusiness.

An emerging market currency index edged higher on Friday but is poised to register its biggest weekly loss in three weeks.

Among developed currencies, the Australian dollar fell more than half a percent to its lowest level since February 2016 at $0.7138 as concerns that any escalation in trade conflict would hit export-oriented economies such as Australia, which have China as their biggest trading partner.

The yuan was relatively stable in the offshore market in Hong Kong as a spike in overnight borrowing costs deterred short-sellers of the Chinese currency.

The dollar held in relatively tight ranges against other major peers such as the euro and pound, with the market bracing for the highly anticipated U.S. jobs report due later in the session.

Ulrich Leuchtmann, a currency strategist at Commerzbank in Frankfurt, said broad concerns were giving a boost to safe-haven currencies and that markets would remain more focused on trade war headlines than upcoming U.S. economic data unless there is a big downward surprise.

August’s U.S. non-farm payrolls report is due at 1230 GMT. The U.S. economy is expected to have added about 191,000 jobs last month, with average earnings at 0.2 percent month-on-month compared to 0.3 percent from July.

The Federal Reserve is poised to hike interest rates this month, its third monetary tightening move in 2018, and the employment data is expected to shape investors’ near-term outlook on interest rates.

While markets waited for the next round to be fired in the U.S- China trade conflict, U.S. President hinted to a Wall Street Journal columnist that he might take up trade issues with Japan, according to CNBC television.

The British pound jumped on Friday after European Union negotiator Michel Barnier said the EU was open to discussing other “backstops” on the Brexit issue.

Reporting by Saikat Chatterjee; Editing by Catherine Evans

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