By Stanley White
TOKYO (Reuters) – The U.S. dollar advanced against the yen on Tuesday thanks to growing optimism the United States and China are on the verge of reaching a preliminary agreement to scale back their bruising trade war.
The yen and the Swiss franc, two currencies that are often bought as safe havens during times of economic or political strife, nursed losses as investors became more comfortable taking on risk.
The Australian dollar held steady after the Reserve Bank of Australia (RBA) left monetary policy unchanged, as expected, and said the main uncertainty continues to be the outlook for consumer spending.
In recent days, Beijing and Washington have given encouraging signs of progress in trade talks. The U.S. government is considering dropping some tariffs on Chinese goods, the Financial Times reported on Monday.
Bloomberg also reported that China is reviewing locations in the United States where he could sign a so-called “Phase 1” trade deal with U.S. President Donald Trump.
Both countries have slapped tariffs on each other’s goods in a trade war that has dragged on for 16 months and raised the spectre of a global recession.
Any progress in resolving the row could potentially boost the dollar and riskier assets, ease concern about the economic outlook and reduce the need for aggressive monetary easing.
“The mood is very much risk on, so that’s how investors will approach the market,” said Minori Uchida, head of global market research at MUFG Bank in Tokyo.
“We’re getting some positive news about trade talks. This is all supportive of the dollar, and this trend could continue.”
The dollar rose 0.17% to 108.77 yen
The U.S. currency rose 0.17% to 0.9895 Swiss Franc
The dollar index <.DXY> against a basket of six major currencies rose 0.1% to 97.599, reaching its highest in almost a week.
In the offshore market, the yuan
Earlier on Tuesday the People’s Bank of China cut the interest rate on its medium-term lending facility for the first time since early 2016 to prop up a slowing economy.
Currency traders are also waiting for the U.S. ISM non-manufacturing report due later on Tuesday, which is forecast to show activity accelerated slightly in October.
The U.S. Federal Reserve has cut interest rates three times this year, but recent data suggest the U.S. economic outlook is not as bad as some had feared – another positive for the dollar.
The Australian dollar
Australia’s central bank left its cash rate at a record low of 0.75% on Tuesday and reiterated its concern about consumer spending. It said rates are likely to remain low for an extended period.
Many economists expect the RBA to cut rates at least once early next year to help revive inflation and a slowing economy.
(Reporting by Stanley White; Editing by Shri Navaratnam)