Yen drops, Aussie jumps as concerns recede over US-China trade

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Yen declined and Australian dollar climbed on Wednesday as concerns over the U.S.-China tariff war receded further following a Financial Times report that the two sides have resolved most of the issues standing in the way of a trade deal.

The yen was a touch lower at 111.455 per dollar after brushing 111.53, its weakest since March 20.

The Japanese currency, a perceived safe-haven, is often sold when risk aversion abates in the broader markets.

“The latest trade-related headlines are adding to the ‘risk-on’ mood in the markets,” said Koji Fukaya, president of FPG Securities in Tokyo.

“That said, the overall response by currencies has been calm so far, as few expected U.S.-China trade negotiations to actually end in acrimony. We now need to see whether any agreement on trade issues can lead to an amendment in recently subdued economic views.”

The Australian dollar gained 0.35 percent to $0.7097, trimming a bulk of the losses suffered the previous day in response to the Reserve Bank of Australia’s policy decision.

The RBA on Tuesday left interest rates unchanged as expected but its statements were seen by some as hints towards a shift to easier monetary policy going forward.

The Aussie climbed 0.55 percent to 79.17 yen.

“Major central banks are embracing dovish rhetoric, which supports ‘risk on’ in the markets. The yen stands to remain on the defensive under such conditions,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The Australian dollar is sensitive to shifts in risk sentiment and also reacts to expectations towards the economic fortunes of China, the country’s main trading partner.

The dollar index against a basket of six major currencies was down 0.1 percent at 97.236, having lost some traction after climbing a 3-1/2-week peak of 95.517 the previous day.

The greenback had reached that high as ebbing risk aversion in the broader markets pushed up long-term U.S. yields from 15-month lows.

The sharp bounce by Treasury yields ran out of steam, however, slowing the dollar’s advance in turn.

The pound was effectively flat at $1.3136.

Sterling had gained 0.25 percent the previous day after Prime Minister Theresa May said she would seek another Brexit delay to work with the opposition Labour leader on an alternative EU divorce deal, a last-ditch gambit to break an impasse over Britain’s departure.

The euro nudged up 0.15 percent to $1.1224 after slipping overnight to $1.1183, its lowest since March 8, weighed by a decline in German bund yields.

German yields have been anchored below zero as the deadlock over Brexit has fueled investor demand for the safe havens.

Source: Reuters

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