(Reuters) - Asian currencies edged higher on Tuesday as global trade tensions eased slightly after an agreement between the United States and Mexico to overhaul the North American Free Trade Agreement boosted risk appetites.
Still, some analysts said the reprieve for regional currencies likely will prove temporary, as the chances the United States and China will resolve their major trade dispute soon is remote.
The dollar index, which measures the greenback’s performance against six other currencies, was nearly flat on Tuesday following two sessions of losses.
Japanese bank MUFG noted that Canada was not part of the NAFTA negotiations “and trade talks with China last week had little progress”.
President Donald Trump “looks to be singling out the countries/economic bloc that he is willing to move forward with his ‘free but fair trade’ agenda such as Mexico, the EU and South Korea. But he is making things difficult for countries like China and Canada,” it said in a note.
The South Korean won led the regional currencies’ gains against the dollar on Tuesday, rising more than a quarter of a percent, while the Taiwan dollar added 0.15 percent.
Higher oil prices lifted the Malaysian ringgit, though concerns about foreign investment in a real estate project undermined sentiment.
Prime Minister Mahathir Mohamad on Monday declared that foreigners will not be granted visas to live in the giant Forest City real estate project on the country’s southern tip.
China’s recent move to put a floor under its currency by reviving a “counter-cyclical factor” in its daily fixing propped up the yuan.
The central bank raised its daily guidance rate for the yuan by the most in nearly 15 months on Tuesday, though corporate demand for cheaper dollars capped the Chinese currency’s gains in the spot market.
The dollar has rallied against peer currencies over the past few months on escalating trade tensions between the United States and its trade partners, and analysts said an easing in trade tensions would likely affect the greenback.
“The dollar has morphed into a haven currency in a typical risk-on/risk-off dynamic when it comes to the trade front,” noted Terence Wu, FX strategist at OCBC Bank in Singapore.
In a note, Wu added that almost any positive news in terms of U.S. trade policy is negative for the dollar, with the resultant improvement in risk sentiment leading to a sell-off in the dollar.
Technical charts showed the dollar index has broken below a key support at its 50-day moving average, which is a bearish sign for the greenback.
Reporting by Patturaja Murugaboopathy in Bengaluru; Editing by Richard Borsuk