You are here


Dollar strengthens as relief over US-Mexico trade deal dissipates


THE dollar rose on Wednesday as relief about a US-Mexico trade deal gave way to concern among investors that the conflict over trade between the US and China was not about to end soon.

The US currency had dipped to a four-week low overnight as investors unwound safe-haven bets on the currency after the US and Mexico agreed on Monday to overhaul Nafta.

The dollar has fallen for three consecutive weeks, even though the US was raising interest rates faster than other major economies. That is partly because of political uncertainty in the US and comments by the Federal Reserve that seemed to suggest a slower pace of US rate increases.

On Wednesday, though, the dollar index gained and at 1045 GMT was up 0.1 per cent at 94.826. It traded as low as 94.434 during the previous session, its lowest since July 31.

"This deal (with Mexico) was more about making progress before the mid-term elections in the United States," said MUFG currency strategist Lee Hardman. "The real fight is likely still ahead and it will not be long before investor attention shifts back to the more concerning conflict with China," he added.

The deadline for public comment on US President Donald Trump's tariffs on another US$200 billion of Chinese goods is on Sept 5, with the new measures possibly taking effect later that month.

Elsewhere, the Swedish kronor edged down towards a nine-year low versus the euro of 10.721 hit on Tuesday over uncertainty about next week's election and signals that interest rates won't rise until 2019.

"Low underlying inflation is putting question marks on Riksbank rate hikes and political risks ahead of the election are lowering the kronor," said Lina Fransson, a fixed income strategist at SEB.

Along with the Turkish lira and the Brazilian real, the Swedish kronor has been one of the worst-performing currencies in 2018.

The euro, meanwhile, fell 0.2 per cent to US$1.1663, as worries mounted that Italy's public deficit could exceed the European Union's ceiling of 3 per cent of gross domestic product. It has risen against the dollar during the previous three sessions.

The Australian dollar was the weakest of the major currencies on Wednesday and fell about half a per cent to US$0.7298. That was prompted by Australia's Westpac Banking Corp raising its key mortgage rates in an effort to preserve its profit margins amid higher wholesale funding costs .

The Australian dollar was knocked lower as traders wagered that the Reserve Bank of Australia might be forced to keep policy stimulatory for longer in the face of a de-facto tightening in the market. China's offshore yuan was down 0.4 per cent at 6.8280 yuan per dollar, after the central bank announced fresh steps on Friday to stabilise the currency.

"Were we to see an escalation - with Washington following through with their threat of 25 per cent tariffs on US$200 billion of Chinese imports - then we would expect another bout of yuan weakness as the currency adjusts to a weaker Chinese economic outlook," said Viraj Patel, a currency analysts with ING in London. REUTERS