Daily Times

The dollar was nudged away from a 13-month peak on Thursday as risk aversion eased and emerging market currencies bounced back on news that a Chinese delegation will travel to the United States late in August to hold trade talks.

China’s Ministry of Commerce said on Thursday that it had received an invitation from the United States for talks to be held with US Under Secretary of Treasury for International Affairs David Malpass.

The news that the world’s two biggest economic powers, currently locked in a trade war, were showing a willingness to negotiate boosted investor sentiment after a worrying week.

The dollar index against a basket of six major currencies was 0.17 percent lower at 96.536. It pulled back from a 13-month high of 96.984 scaled the previous day when currency turmoil in Turkey and concerns about China’s economic health supported safe-haven assets and weighed on emerging market currencies.

China’s onshore yuan, which has been rough barometer of risk sentiment, was 0.35 percent firmer at 6.911 to the dollar and off a 15-month low of 6.934 set on Wednesday.

Other emerging market currencies also bounced back. The South African rand gained 0.6 percent to 14.48 per dollar after sliding more than 2 percent overnight while the Mexican peso and Thai baht also rose.

The MSCI emerging currency index nudged up after hitting its lowest since May 2017 on Wednesday.

“Trade war fears had morphed into an opportunity for speculators, who had been selling the yuan and other currencies against the dollar. The news that pointed to a possible easing of US-China trade tensions appears to have curbed such activity,” said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities.

“But there is no guarantee that the trade discussions will end successfully. As such, the trade news may have stopped the speculators’ selling but perhaps only for the time being.”

The greenback had drawn strength after a tough week for emerging market currencies, initially led by the rout in the Turkish lira. The currency plunged to an all-time low at the start of the week as tensions between Ankara and Washington flared and worries over President Tayyip Erdogan’s economic policies increased.

The lira has since recovered to 5.9725 per dollar after slumping to a record low of 7.24 on Monday.

Junichi Ishikawa, senior FX strategist at IG Securities, said that market focus was moving beyond the lira to wider political risks.

Published in Daily Times, August 17^th 2018.