Trade optimism puts floor on dollar/yen, boosts Aussie

By Ritu,

Capital Sands

The dollar hovered near a six-month high versus the Japanese yen while the Australian dollar climbed to its strongest since July on Friday, buoyed by easing Sino-U.S. trade tensions.

The optimism around prospects for a trade deal reduced demand for safe-haven currencies such as the yen, but with global currency markets in a holiday mood after Christmas Day on Wednesday, overall trading activity was mostly subdued.

Beijing said on Wednesday it is in close touch with Washington on a trade deal signing ceremony, a day after U.S. President Donald Trump said he and Chinese President Xi Jinping will have a ceremony to sign the recently struck agreement.

Overnight, the dollar rose to as high as 109.68 yen against the safe-haven Japanese currency, a one-week high and not far from 109.73 yen, its late May peak brushed earlier this month. In Asian trade, the pair was last quoted at 109.47 yen.

“Although the overnight gains in the dollar were partly erased by dipping Treasury yields after the seven-year note auction, U.S.-China trade optimism has put a solid floor under the dollar,” said Toshinobu Chiba, chief portfolio manager for fixed income at Nissay Asset Management.

“In any case, I don’t expect any large moves either way in markets today as trading remains subdued due to the holiday week.”

U.S. Treasury yields slipped on Thursday after the Treasury Department sold $32 billion in seven-year notes to strong demand.  The 10-year last stood at 1.894%, its lowest level in 1-1/2 weeks.

The trade-sensitive Aussie dollar firmed to as high as $0.6951 against its U.S. counterpart.

The euro was a shade higher at $1.1117 versus the greenback.

The offshore yuan weakened slightly to 6.9958 yuan per dollar .

Profits at China’s industrial firms in November grew at the fastest pace in eight months, breaking a three-month declining streak, as production and sales quickened, but broad weakness in domestic demand remains a risk for earnings next year.