US dollar gains as risk appetite improves, but outlook remains weak

[NEW YORK] The US dollar rose on Tuesday, led by gains against the yen and Swiss franc, as risk appetite improved and Wall Street's main indexes advanced, helping the currency stabilise after sharp declines the previous day.

The outlook for the US dollar, however, remains murky due to global trade tensions. The greenback has lost 2 per cent in the year so far.

"At the moment, support from high expectations for further monetary policy tightening from the Federal Reserve has been offset by ongoing political pressures and global trade uncertainties," Fawad Razaqzada, market analyst at Forex.com in London, said.

China on Sunday announced tariffs on US$3 billion in imports of US food and other goods in response to US tariffs on imports of aluminum and steel, a skirmish that investors fear is a prelude to a broader trade war.

The Trump administration is expected to announce this week US tariffs on US$50 billion to US$60 billion in Chinese imports. On Tuesday China's ambassador to the United States said Beijing will take counter-measures of the "same proportion" and scale if Washington imposes further tariffs.

In mid-morning trading, the US dollar rose 0.2 per cent against a basket of currencies to 90.218.

Analysts said investors were also focused on US payrolls data and comments by Fed chairman Jerome Powell at the end of the week, which should help determine the short-term direction of the US dollar.

Against the yen, which tends to benefit in times of economic uncertainty, the US dollar snapped three days of losses to trade 0.5 per cent higher at 106.43 yen.

Traders though are still betting on a stronger yen and a broadly weakened dollar if the trade tensions escalate.

"US protectionist measures implicitly signal the administration's desire for a weaker dollar - and such expectations are likely to be entrenched in FX markets until credibly broken," said Viraj Patel, currency analyst at ING in London.

The US dollar also advanced versus another safe haven, the Swiss franc, rising 0.3 per cent to 0.9584 franc.

The euro tumbled after a survey showed the euro zone's manufacturing boom faltered for a third month in March, although output remained robust.

The euro was last down 0.3 per cent at US$1.2258.

The Australian dollar, meanwhile, rose 0.4 per cent to US$0.7685 versus the dollar, above a three-month low set last week. The currency reacted little to the Reserve Bank of Australia's decision to keep its cash rate at a record low 1.5 per cent as expected on Tuesday.

REUTERS