Dollar heads towards 1-week lows as trade U.S.-China talks get underway

• The Chinese currency in the offshore market gained for a second day, rising 0.3pc versus the greenback to 7.1145 yuan per dollar.
• "The (U.S.) President should be keen to achieve that, in particular during the election campaign. ..I think the optimism has risen repeatedly over the past few days"

LONDON: The dollar weakened broadly against its rivals on Thursday as the progress of trade negotiations between the United States and China kept markets on edge with the prospects of a partial deal fuelling appetite for trade-oriented currencies.

The Australian and New Zealand dollars led gains against the greenback after Bloomberg reported the United States is weighing a currency pact with China which could see a planned tariff hike next week being suspended.

With negotiations between Beijing and Washington getting underway on Thursday, market watchers say any concessions from China would be touted as a success from U.S. officials and that might fuel further yen weakness and gains in the Aussie dollar.

"The (U.S.) President should be keen to achieve that, in particular during the election campaign. ..I think the optimism has risen repeatedly over the past few days," Ulrich Leuchtmann, an FX strategist at Commerzbank said in a daily note.

A currency pact would pave the way for further negotiations on core issues such as intellectual property and forced technology transfers with reports that Beijing has offered to increase purchases of agricultural goods further signaling a thaw in trade tensions.

"It remains to be seen whether a partial trade deal will be acceptable for President Trump who wants to secure a broader agreement," MUFG strategists said.

Against a basket of its rivals, the dollar weakened 0.3pc to 98.845, nearing a one-week low. It weakened as much as 0.4pc versus the New Zealand and Australian dollars.

"There are many headlines flying about, some negative, and some positive," said Stuart Oakley, global head of flow FX at Nomura in Singapore.

"The USD/CNY fix (by China's central bank) will be key to watch over the next 4-5 sessions. It's been pegged around 7.0730 for several weeks. A move away from that level will give us a clear signal as to how the trade negotiations have gone."

The Chinese currency in the offshore market gained for a second day, rising 0.3pc versus the greenback to 7.1145 yuan per dollar.

The pound climbed 0.3pc to $1.2241, though it remained close to a one-month low amid uncertainty over Britain's exit from the European Union before a slew of British data.