The US Treasury Department has accused China of currency manipulation, after the yuan was devalued to its lowest level in more than a decade.

The move rattled financial markets in Australia and abroad, however local shares are expected to open higher on Wednesday after Wall Street clawed back some losses overnight.

US President Donald Trump announced last week he would slap a 10 per cent tariff on a further $US300 billion in Chinese imports from September 1.

Frydenberg said it was important to be realistic about uncertainty in the global economic outlook.

“We shouldn’t overreact to these developments, but we should recognise that China’s currency moves and the increase in the US tariffs are an unwanted escalation,” he told ABC radio’s AM program on Wednesday.

“These are concerning developments and our message is to continue to encourage cool heads to prevail and for differences between China and the US to be negotiated between the parties.

“Right now the Australian government would like to see cool heads prevail.”

He said the federal government would continue to act domestically to stimulate economic growth, pointing to personal income tax cuts which passed parliament last month.

The treasurer said tax office data showed more than $6 billion had flowed into the economy as a result of the cuts.

The Reserve Bank on Tuesday held the cash rate at a record low one per cent amid what governor Philip Lowe called “increased” uncertainty for the global economy.

But Frydenberg says the local economy is still tipped to grow at 2.5 per cent this year, arguing that low interest rates are becoming more common across the globe.

“This is a new phenomenon where we’re seeing low inflation, relatively low unemployment as well as very low interest rates,” he told Sky News.

Frydenberg also downplayed risks to Australians’ retirement savings after former treasurer Peter Costello warned superannuation and the budget’s bottom line could be hit by uncertainty in the global economy.

“People who have had super and money in managed funds have done much better than if they had money in the bank,” he said.

“We’ll still deliver a surplus next year and we’re absolutely determined to do that.”

-AAP

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