Yuan and Australian dollar below four-month highs

London

TRADE-SENSITIVE currencies such as the Australian dollar and Chinese yuan held below four-month highs on Monday as relief following a US-China trade agreement gave way to caution due to lack of details.

Sterling remained bolstered by last week's resounding election win for British Prime Minister Boris Johnson's Conservative Party.

Washington and Beijing cooled their trade war last week, reducing some US tariffs in exchange for what US officials said would be a big jump in Chinese purchases of American farm products and other goods.

US Trade Representative Robert Lighthizer said on Sunday that the deal would nearly double US exports to China over the next two years and was "totally done".

A date for senior US and Chinese officials to formally sign the agreement was still being determined, he added.

Caution over the future path of trade talks pushed the trade sensitive yuan and Australian dollar off last week's four-month peaks.

"While there is significant relief over the trade deal, a lot of that would have been in the price already, so now there is a chance that trade relations could be strained again and we know a second phase of the trade agreement will be difficult," said Jane Foley, senior currency strategist at Rabobank.

The Australian dollar fetched US$0.6874, easing from Friday's four-month high of US$0.6939.

The New Zealand dollar dropped 0.3 per cent at US$0.6611 after climbing to a four-month high at US$0.6636 on Friday. The Canadian dollar strengthened 0.3 per cent to its highest level in almost six weeks at US$1.3127.

The offshore Chinese currency was little changed around 7.00 yuan per dollar but below four-month highs around 6.92 hit last week.

It found support from slightly stronger-than-expected Chinese production and consumption data.

The euro rose 0.2 per cent to US$1.1142, but also off last week's peaks. It showed little immediate reaction to data showing eurozone business growth remained weak in December.

The dollar was a tad firmer at 109.43 yen although its index, which measures the greenback's value against a basket of currencies, was slightly lower on the day at 97.02.

"On the back of the trade deal, the main thing is a recovery in risk appetite, which means a softer dollar going forward and a firmer euro," said Fritz Louw, a currency strategist at MUFG.

"But at some point markets will start to price in that there is no clear plan for Phase 2 (of the trade deal)."

Elsewhere, sterling rose as much as 0.7 per cent on expectations that last week's election win for Britain's ruling Conservative Party will end near-term Brexit uncertainty.

The British pound was last trading at US$1.3358, 0.3 per cent firmer on the day. REUTERS