US-China trade hopes boost euro, commodity currencies

London

THE euro and commodity-linked currencies rose on Wednesday as optimism over US-China trade negotiations improved investor sentiment and encouraged some selling of the greenback.

Expectations of more easing in China also supported markets, with Asian shares rallying and European stocks rising at the open.

Adam Cole, chief currencies strategist at RBC, said those factors were giving a "better tone for risk this morning. It's all about a general risk-on mood".

News that Beijing and Washington had agreed to extend trade talks in Beijing for an unscheduled third day on Wednesday boosted oil prices, with US West Texas Intermediate crude oil futures topping US$50 a barrel for the first time this year.

That, in turn, helped spur demand for riskier assets and commodity-linked currencies.

The euro rose 0.2 per cent to US$1.1464 as increased demand for currencies deemed riskier knocked the dollar lower.

An unexpected fall in German industrial output for the third straight month had weighed on the euro on Tuesday.

The drop underscored concern about a slowdown and the European Central Bank's caution as it tries to wean the region off stimulus.

The dollar index traded down 0.2 per cent at 95.753.

The Australian dollar, considered a barometer of sentiment towards China, rose 0.2 per cent to US$0.7155. The Aussie has now risen off near-decade lows below US$0.68 reached earlier this month.

The Chinese yuan gained 0.3 per cent to 6.8341 in offshore markets.

The Canadian dollar also benefited, rising more than 0.2 per cent to C$1.3242.

"Markets are finding comfort in the fact that the trading level of West Texas Intermediate futures has shifted above US$50 a barrel," said Yukio Ishizuki, senior currency strategist at Daiwa Securities. "Commodity-linked currencies are performing strongly as a result." The Norwegian kroner was up more than a quarter of a per cent. The New Zealand dollar gained 0.6 per cent to US$0.6760 .

The rally in riskier assets has accelerated since last Friday when Federal Reserve chairman Jerome Powell said he was aware of risks to the economy and would be patient and flexible in policy decisions this year. That eased concern that the Fed would be raising rates as the US economy weakened.

Against the yen, the dollar gained a tenth of a per cent to 108.85 yen per dollar. REUTERS