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Haven Currencies Drop as Yuan Rallies in Wake of Trump-Xi Truce

The yen and Swiss franc, which tend to act as refuges in times of market distress, declined against the greenback.

Haven Currencies Drop as Yuan Rallies in Wake of Trump-Xi Truce
Australian Currency as Aussie Drops (Brendan Thorne/Bloomberg)

(Bloomberg) --

The dollar fell against the yuan and commodity-related currencies in Asia-Pacific trading on Monday after the U.S. and China backed down from threats to escalate their trade war. Haven currencies weakened.

The yen and Swiss franc, which tend to act as refuges in times of market distress, declined against the greenback, while the Australian dollar -- a proxy for risk and China-related news -- gained as much as 0.2%. The dollar slid as much as 0.7% against the offshore yuan.

The upbeat market moves follow the conclusion of a high-stakes meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping on the sidelines of the Group-of-20 summit that alleviated the immediate risk of more tariffs. Although many questions over the future of the trade dispute between their two countries remain, one notable breakthrough was the decision to allow Huawei Technologies Co. to buy some products from U.S. suppliers.

Haven Currencies Drop as Yuan Rallies in Wake of Trump-Xi Truce

“The market has been in need of a good outcome, and the G-20 meeting delivered one,” said Sandeep Parekh, a foreign-exchange and rates strategist at Australia & New Zealand Banking Group Ltd. in Auckland. “It remains to be seen if Trump and Xi’s actions match their words, but at least in the short-term, risk currencies will receive a boost.”

Parekh expects the Australian and New Zealand dollars to strengthen further against both the greenback and the yen. While the kiwi’s recent rally “looks a little stretched,” he’s keeping an eye on 0.6780 level. The pair is currently trading around 0.6723.

Trump said after the G-20 meeting that he would hold off indefinitely on tariffs planned for an additional $300 billion in Chinese imports. The White House has yet to reveal details of his arrangement with Xi, leaving uncertainty about how the two countries will proceed.

“Any positive market reaction is likely to exhaust itself by the end of the day Monday,” said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo. “Market wariness will remain as Trump didn’t make it clear what he meant by suspending additional tariffs for the time being. It’s possible he may bring the issue back a month later.”

The weekend also witnessed a hastily planned meeting between Trump and Kim Jong Un in the Demilitarized Zone that separates the two Koreas, which included the first-ever foray by a sitting American president into North Korean territory.

Meanwhile, European leaders were gathered in Brussels on Sunday to decide who to nominate at the helm of the European Union’s top positions, although no decision was expected about who will succeed Mario Draghi as the boss of the European Central Bank.

With the latest trade hurdle cleared, the market will turn its gaze to the U.S. economic data due this week and the potential for monetary easing by the Federal Reserve at its next policy meeting.

Richard Grace, chief currency strategist at Commonwealth Bank of Australia, said in a note Monday that a quarter point cut at the July Federal Open Market Committee gathering will be “just the start” and that the greenback “has scope to further ease this week” as attention shifts toward the Fed.

Some moves from early Monday trading in the foreign-exchange market:

  • USD/CNH fell 0.7% to 6.8189
  • AUD/USD added 0.1% to 0.7026, headed for a fourth straight daily gain
  • USD/JPY climbed as much as 0.6% to 108.51, while USD/CHF advanced 0.3% to 0.9792
  • USD/CAD slipped 0.1%, while NZD/USD was up 0.1%

--With assistance from Chikako Mogi and Masaki Kondo.

To contact the reporters on this story: Benjamin Purvis in New York at bpurvis@bloomberg.net;Katherine Greifeld in New York at kgreifeld@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net, Benjamin Purvis

©2019 Bloomberg L.P.