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Asia's woes push US$ to 2½ week high as investors seek safety

London

SIGNS that Asia is already feeling the pinch from a trade conflict between the United States and China triggered some safe haven flows into the US dollar on Tuesday, while higher US Treasury yields helped the move.

Data showed economic growth in Singapore was at its lowest in nearly a decade in the first quarter, while in Thailand it was at its lowest in four years, raising worries that major Asian economies will be hurt by global trade tensions.

Elsewhere, Australia's top policymaker Philip Lowe said on Tuesday that the Reserve Bank of Australia would consider the case for lower interest rates at its June policy meeting, pushing the Aussie dollar half a per cent lower to US$0.6873.

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"The situation in Asia is difficult - Thailand, Singapore, export decline in Korea - which shows that the trade conflict is hurting even without a further escalation," said Commerzbank FX strategist Esther Maria Reichelt. "This is the main cause behind the dollar strength, if anything I was little bit surprised we didn't see a more pronounced risk movement," she added.

The dollar hit a 21/2 week high against a basket of six major currencies, rising 0.2 per cent to a high of 98.11.

"The Fed turned (dovish) and you would expect the dollar to weaken but for the fact that every central bank and his dog are doing the same, so the upside to the dollar is reinforced by the other central banks," said Neil Mellor, an FX strategist at BNY Mellon.

"Also the dollar rightly or wrongly does have a reputation as a safe-haven play. Every country will be expected to suffer on the back of the trade war but the dollar has a status as a liquid safe haven."

The greenback may have also been helped by higher US Treasury yields, with the 10-year yield rising to a one-week high of 2.428 per cent on the back of some positive comments on the US economy from policymakers.

Yields also rose as the US government temporarily eased trade restrictions imposed last week on China's Huawei, a move aimed at minimising disruption for its customers.

Conversely, the euro - which makes up a significant chunk of that basket - hit a 2½ week low of US$1.1142, down 0.2 per cent on the session.

The single currency is being hurt by dollar strength and also by upcoming European parliamentary elections in which eurosceptic parties may fare well.

A successful outing for right-wing Italian parties in particular could mean new domestic elections in the eurozone's third-largest economy, and potentially a new coalition of right-wing parties led by Matteo Salvini's League.

Sterling fell below US$1.27 for the first time since mid-January ahead of a UK cabinet meeting in which senior ministers will consider the merits of whether lawmakers should hold indicative votes on Brexit options. REUTERS