The S&P/ASX 200 Index fell 128.3 points, or 1.9 per cent, to 6640.3 while the broader All Ordinaries lost 135.5 points, or 2 per cent, to end the session at 6710.6. Loading The heavy declines saw close to $38 billion wiped from the ASX boards. "Markets will still be digesting last week’s events and debating whether Washington is trying to pressure China or the Fed with recent statements," said JPMorgan Asset Management global market strategist Kerry Craig. "Broadly our cautious view on markets remains."

Overall losses on the local market were led by the major miners as the regional weakness coincided with a heavy fall in iron ore prices on Friday. The Chinese currency is now the focus of tensions with America. Credit:Jason South BHP Group led the market fall, dropping 3.6 per cent to $37.38, Rio Tinto lost 3.5 per cent to end the session at $91.49 and Fortescue Metals declined 7.2 per cent to $7.09. The major banks were also weaker on Monday. ANZ fell 1.7 per cent to $27.31, Westpac shares slid 1.2 per cent to $28.47, NAB dropped 1.3 per cent to $28.15 and Commonwealth Bank declined 0.8 per cent to $81.21. Of the gold miners, Resolute Mining added 4.3 per cent to close at $1.94 while Evolution Mining, the sector's next best performer, advanced 1.9 per cent to $5.25.

Local shares had opened slightly weaker on Monday as markets braced for a Reserve Bank of Australia meeting, key earnings and a potential retaliation from China after the US imposed further tariffs on the country last week. Loading That retaliation came on Monday morning, when the People's Bank of China set the midpoint for the yuan's daily trading band at 6.9225 per dollar, pushing the currency beyond the key 7-per-dollar level for the first time in more than a decade. That move sent Asian markets reeling, pushing the Australian sharemarket and other bourses in the region firmly lower. "Today market movements are likely to be related to assumed retaliation from China and the direction of the yuan," Mr Craig said.

"But it’s worth noting that China does have other options and could increase existing tariffs rather than move the currency." Stock watch GRAINCORP Morgans increased its price target on GrainCorp and retained its 'hold' recommendation despite the company providing weaker than expected guidance for 2018-19. The broker said the company's proposed demerger was the primary reason behind the increase. "We see the demerger proposal as a short term measure to create value for shareholders or more specifically unlock the value of the Malt business," said analyst Belinda Moore. "However, we think that the New GrainCorp will trade at a discount to its average season valuation given the difficult trading conditions. New GrainCorp also needs to find a CEO. The demerger into two smaller businesses, could see GrainCorp fall out of the ASX200." Morgans increased its price target on GrainCorp from $8.04 to $8.25.

What moved the market RBA RATE CUT Economists are expecting the Reserve Bank of Australia to keep its powder dry when it meets on Tuesday, despite futures fully pricing in two 0.25 percentage point cuts by May 2020. Australian bond yields across the curve tumbled on Friday following the US's latest decision to increase tariffs on Chinese goods. The Australian 2-year and 5-year bond yields are trading near 0.77 per cent, consistent with the RBA's policy rate averaging around 0.75 per cent over the next five years. The Reserve Bank of New Zealand is expected to cut its cash rate on Wednesday. IRON ORE Iron ore prices fell heavily on Friday as lower steel prices in China reduced demand for the bulk commodity. The latest trade war escalation from the US has renewed fears China's economy could begin to slow. The price of iron ore fell 4.8 per cent to $US108.45 a tonne on Friday. While supply concerns are still lingering, limited demand is overriding those fears. "We expect iron ore prices to average $US110 a tonne this quarter, but if prices don't stabilise soon, we see downside risk to our forecast of $US100 a tonne in the December quarter."