The Australian and New Zealand dollars clung to gains on Wednesday ahead of the resumption of trade in Chinese markets, where eyes are on Beijing's fixing of the yuan midpoint rate following the outbreak of Donald Trump's trade war.

The dollar was on the back foot in the early Asian session, giving some respite to heavily battered currencies like the euro, which bounced back above the $1.02 level and last bought $1.0374.

Volatility in currency markets eased a little on Wednesday after a turbulent start of the week following Trump's imposition of steep tariffs on top U.S. trading partners, with those on Mexico and Canada having since been delayed following negotiations.

But China on Tuesday slapped tariffs on U.S. imports in a swift response to new U.S. duties on Chinese goods, and Trump said the same day he is in no hurry to speak to Chinese President Xi Jinping to try to defuse a new trade war between the world's two largest economies.

China returns from the extended Lunar New Year break on Wednesday and traders are closely watching the fixing of the yuan midpoint rate by the People's Bank of China (PBOC) - within which it allows the yuan to trade on any given day, for a sense of whether Chinese authorities will allow for a weaker currency to blunt the impact of tariffs.

The offshore yuan had tumbled to a record low of 7.3765 per dollar at the start of the week, though it has since recovered some of those losses.

The Australian and New Zealand dollars, often used as liquid proxies for the yuan, were clinging to overnight gains, with the Aussie last at $0.6251 after rising 0.47% on Tuesday.

The kiwi last fetched $0.5648, having gained 0.44% overnight.

"What the PBOC does to the fixing today would tell us a lot about the PBOC's stance on how to deal with the trade war with the U.S.," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

"Our base case is that China will increase its tolerance for currency's weakness in response to the U.S. tariffs. Whether or not the PBOC does that as soon as today remains in question."

Elsewhere, the Canadian dollar extended its rebound from Monday's 22-year low and last stood at C$1.4333.

The Mexican peso was steady at 20.4910 per dollar, away from a trough of 21.2882 hit on Monday, its weakest level in nearly three years.

Sterling was similarly little changed at $1.2479.

"I am actually quite surprised at the resilience of markets. Risk sentiment...has been quite positive despite all the tariff headlines and the resumption of the U.S.-China trade war," said CBA's Kong.

"I think part of the optimism stems from the fact that the U.S. was willing to delay tariffs as long as the other countries gave Trump what he wanted."

In Japan, the yen was a touch higher and last stood at 154.30 per dollar. The dollar index was flat at 108.04.

Source : Reuters