US dollar, yen rise on revival of US-China trade jitters

London

THE US dollar and the yen rose on Thursday after the arrest in Canada of a top executive of Chinese tech giant Huawei prompted fears of a flare-up in US-China trade tensions.

The US dollar has been under pressure over concern about a possible US recession.

But the arrest of Huawei Technologies Co Ltd's chief financial officer increased safe-haven demand for the currency as doubts emerged over a truce on trade struck days ago between Presidents Donald Trump and Xi Jinping.

"Political quarrels outside the trade arena could jeopardise the success of the trade talks . . . This is causing risk aversion to rise again," said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.

As investors grew cautious and pulled back from riskier assets, the Japanese yen, often sought in times of market unrest, rose 0.4 per cent.

Sharp losses in technology shares pulled down benchmark stock indexes in China as the Chinese yuan slid 0.7 per cent against the US dollar to 6.9037, its biggest daily fall since August.

The Australian dollar also fell more than one per cent, demonstrating its vulnerability to a worsening trade conflict due to its export-oriented economy.

Against a basket of six rivals, the US dollar edged up 0.2 per cent to 97.202. The currency has fallen 0.4 per cent this week but is only half a percent off a 17-month peak of 97.693 touched on Nov 12.

The US dollar fell broadly earlier this week after a thaw in trade tensions between Washington and Beijing.

It has also been pressured by worrisome signs in US bond markets about economic growth and signals from the Federal Reserve that a slowdown in the pace of interest rate hikes may be coming.

"The dollar could remain under pressure until this month's Fed meeting when the market will see the Fed's stance on policy and the economy," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"The recent reaction to the US yield curve inversion appears a little hysterical, but the dollar will not be given the all clear sign until the Fed meeting is hurdled."

Fed policymakers are still widely expected to raise interest rates again at their Dec 18-19 meeting, but the market focus is on how many rate hikes will follow in 2019.

The Canadian dollar fell as much as 0.6 per cent to US$1.3437, while the Norwegian crown slid 0.7 per cent against the US dollar, pulled down by fraying market sentiment and weak oil prices. The yen rose to 112.645 against the US dollar and made strides against most of its peers.

The euro was slightly lower at US$1.1328 after retreating from this week's high of US$1.1419 scaled on Tuesday. REUTERS