September 19, 2018 / 12:53 AM / 7 months ago

Dollar slips vs euro, Aussie as investors discount trade tensions

NEW YORK (Reuters) - The U.S. dollar edged lower against the euro and fell to the lowest in nearly three weeks against the risk-sensitive Aussie on Wednesday, as worries over a trade row between China and the United States eased.

FILE PHOTO: A woman counts U.S. dollar bills at her home in Buenos Aires, Argentina August 28, 2018. Picture taken August 28, 2018. REUTERS/Marcos Brindicci/File Photo

The euro was 0.14 percent higher against the greenback.

The Australian dollar, seen as a proxy for China-related trades as well as a barometer of broader risk sentiment, was 0.69 percent higher AUD=, the highest since Aug. 30.

China on Tuesday imposed new levies on about $60 billion worth of U.S. goods, as planned, but scaled back rates. Washington’s new duties were set at 10 percent for now, before rising to 25 percent by the end of 2018, rather than an outright 25 percent.

“The market reaction seems to suggest that the tariff announcement was overall on the soft side of market expectation,” said Alvise Marino, an FX strategist at Credit Suisse in New York.

Risk appetite held up across markets. Emerging-market currencies firmed, led by the Indian rupee after China said it would not retaliate with competitive currency devaluations.

Heightened trade-related tensions in recent months have been generally supportive of the U.S. dollar versus currencies viewed as riskier.

Despite its weaker tone on Wednesday, some market participants still see strength for the dollar.

“It is the champion reserve currency and it has the risk-free Fed funds rate. So the currency with the lowest risk is offering the highest yield in G10,” said Andreas Koenig global head of FX at asset manager Amundi.

“As long as this abnormality holds you can’t strategically sell the dollar.”

Investors were also awaiting next week’s Federal Reserve meeting. The U.S. central bank is expected to raise benchmark interest rates and shed light on the path for future rate hikes.

The dollar was 0.15 percent lower against the yen. Bank of Japan Governor Haruhiko Kuroda stressed that he would not pull the plug on monetary easing until inflation hits his 2 percent target, warning that escalating international trade disputes could inflict widespread damage to global growth.

The Canadian dollar strengthened to its highest in nearly three weeks against its U.S. counterpart, before paring most gains ahead of further talks to revamp the North American Free Trade Agreement.

Traders kept an eye on Brexit-related news out of Salzburg, Austria, where British Prime Minister Theresa May was meeting with European Union leaders at a summit.

Sterling was nearly flat against the dollar, having erased most early gains after The Times reported that May had rejected an improved offer from the EU on to solve the Irish border issue.

One of the thorniest problems remaining in the negotiations is how to avoid a disruptive post-Brexit “hard border” for troubled Northern Ireland on the United Kingdom’s only land border with the EU.

Reporting by Saqib Iqbal Ahmed; Editing by Susan Thomas

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