March 6, 2018 / 9:26 AM / 4 months ago

FOREX-Trade war worries keep U.S., Canadian dollars weak

* Dollar/yen close to 16-month low set last week

* Canadian dollar seen most sensitive to trade war jitters

* Swedish crown hits 8-yr low on dovish Riskbank chief

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Jemima Kelly

LONDON, March 6 (Reuters) - The dollar edged down on Tuesday, while the Canadian dollar traded close to an eight-month low on persistent worries about a trade war stemming from U.S. President Donald Trump’s proposed tariffs on imported steel and aluminium.

Against the yen - traditionally seen as a safe haven - the dollar edged down 0.2 percent to slip below 106 yen, not far from the 16-month low the greenback had slid to late last week after Trump announced plans to impose a hefty 25 percent levy on steel imports, and 10 percent on aluminium.

Trump faced growing pressure on Monday to pull back from his plans from political and diplomatic allies as well as U.S. companies, but he said he would stick to his guns.

The dollar traded 0.1 percent lower on the day against a basket of six major rivals.

“The market has to work out what the trade wars mean for the U.S. dollar,” said Rabobank currency strategist Jane Foley.

“While in the short term they might be seen as dollar-negative, there’s an argument to say in the medium term it could be dollar-positive, because if growth really does slow down, and moves out of emerging markets, then we could see a squeeze on liquidity and some positive dollar momentum.”

However, Foley added that the spectre of trade wars were unambiguously negative for the Canadian dollar, with Trump’s proposed tariffs on steel and aluminium - of which Canada is its prime supplier - seen as a bargaining chip in talks to revamp the North Atlantic Free Trade Agreement (NAFTA).

The Canadian dollar traded down a quarter of a percent on the day at C$1.2995 against its U.S. counterpart, close to an eight-month low of C$1.3002 set on Monday.

“The Canadian dollar is most affected by the step up in trade war rhetoric,” wrote Commerzbank currency strategists in a note to clients.

“Tomorrow’s BoC (Bank of Canada) rate meeting will be decisive for the immediate Canadian dollar outlook: if, despite the recent developments, the BoC keeps the door open for further rate hikes during the course of the year, the Canadian dollar is likely to be able to resist further notable depreciation,” they added.

Sweden’s crown slumped to a fresh eight-year low, after the governor of the country’s central bank said it should not move too fast with normalizing monetary policy, or it could have a negative effect on the crown.

The crown slipped 0.2 percent on the day to 10.2070 crowns per euro, its weakest since February 2010.

The euro edged up 0.1 percent to $1.2347, having recovered from a brief selloff on Monday tied to Italy’s inconclusive weekend election. (Reporting by Jemima Kelly Editing by Raissa Kasolowsky)

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