Dollar skids as Korea agreement drives up risk appetite

LONDON: The dollar skidded on Tuesday and riskier currencies such as the Australian dollar soared, as appetite for risk was rekindled by a historic agreement between North and South Korea on direct talks.

North and South Korea, still technically at war but enjoying easing tension since the Winter Olympics in the South last month, will hold their first summit in more than a decade next month, South Korea said on Tuesday.

It also said North Korea is willing to hold talks with the United States on denuclearisation and will suspend nuclear tests while those talks are under way.

The dollar, which has been sought at times of risk aversion in recent months, tumbled on the news, trading down 0.6 percent on the day against a basket of major currencies.

Investors piled into higher-yielding currencies, with the New Zealand dollar up as much as 1.2 percent on the day and the Aussie up more than 1 percent.

"We ended last week in a risk-averse tizzy ... but the market is very happy to look through things like trade wars and other noise and get back to the business of being short dollars and long risk assets," said Societe Generale macro strategist Kit Juckes, in London.

The dollar had already been weakening on persistent worries about a trade war stemming from U.S. President Donald Trump's proposed tariffs on imported steel and aluminium.

Against the yen - traditionally seen as a safe haven - the dollar had slipped as low as 105.86 yen, not far from the 16-month low it reached late last week after Trump said he would impose tariffs of 25 percent on steel imports and 10 percent on aluminium. But by 1300 GMT the dollar was flat at 106.17 yen.

Trump faced growing pressure on Monday to pull back from his plans from political and diplomatic allies as well as U.S. companies, but he said he would stick to his guns.

"The market has to work out what the trade wars mean for the U.S. dollar," said Rabobank currency strategist Jane Foley.

"While in the short term they might be seen as dollar-negative, there's an argument to say in the medium term it could be dollar-positive, because if growth really does slow down, and moves out of emerging markets, then we could see a squeeze on liquidity and some positive dollar momentum."

As the dollar slumped, the euro rebounded above $1.24 to a two-week high of $1.2414, after a brief selloff on Monday tied to Italy's inconclusive weekend election.