Dollar firms as US, China throttle back trade tensions

26 Aug, 2019

NEW YORK: The US dollar strengthened on Monday morning, recovering from overnight losses after the United States and China sought to ease trade war tensions.

President Donald Trump, on the sidelines of the G7 summit of world leaders in France, said Chinese officials had contacted US trade counterparts overnight and offered to return to the negotiating table. Vice Premier Liu He, who has been leading the talks with Washington, said China was willing to resolve the trade dispute through "calm" negotiations.

In overnight trade prior to these remarks, China's yuan had fallen to an 11-year low in the onshore market and a record low offshore and the US dollar fell to a 2-1/2 year low against the Japanese yen.

The currency market had been reacting to Trump's announcement on Friday of an additional 5% duty on $550 billion in targeted Chinese goods, hours after Beijing unveiled retaliatory tariffs on $75 billion worth of US products, sending stocks into a tailspin and investors rushing for the safety of bond markets.

Trump on Monday sought to limit the fallout and smooth tensions, helping the yuan come off its lows. The dollar index recovered, last up 0.33% at 97.965.

"It has been a bit of a roller coaster. We had the dollar opening up quite weak in Asia last night. Then a number of things have happened to reverse that including dollar/CNH pushing higher," said Daniel Katzive, head of foreign exchange strategy for North America at BNP Paribas.

"Of course, most importantly," he said, were "the more optimistic comments from the president on the China trade relationship."

In China's onshore market, the yuan fell to 7.1540 per dollar, the lowest since February 2008.

In the offshore market, the yuan slid to as low as 7.1858 yuan, the weakest since international trading in the currency began in 2010, before recovering to 7.1635 yuan - down 0.43% on the day - after Trump's upbeat comments.

In a sign that some calm had returned to markets, the Japanese yen - which investors regard as a safe-haven - fell 0.57% to 105.99, having earlier hit a 2-1/2-year high of 104.44.

"I think market uncertainty around trade is going to remain very elevated in the best case scenarios. It should ultimately mean that currency pairs like dollar/yen continues to push lower because Japanese investors have big exposures to global markets and if markets are more volatile, they'll be more cautious about maintaining their FX exposure," said Katzive.

Copyright Reuters, 2019

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