FOREX-Aussie dollar up on hopes of US-China trade deal, sterling surges on Brexit deal hopes

October 11, 2019

LONDON (Oct 11) - The Australian dollar and Chinese yuan, often seen as barometers of investor risk appetite, rose Friday on hopes of progress in U.S.-China trade talks, while optimistic comments about the prospects of a possible Brexit divorce deal boosted sterling.

Top U.S. and Chinese negotiators wrapped up their first day of trade talks on Thursday, with U.S. President Donald Trump welcoming what he called a "very, very good negotiation with China".

Business groups expressed optimism the two sides might be able to de-escalate their trade war, which has sapped economic growth around the globe.

A Chinese newspaper said on Friday that a "partial" trade deal would benefit China and the United States, reflecting Beijing's aim of cooling the row before more U.S. tariffs kick in.

"Markets are increasingly narrowly driven, this means that every piece of good news is going to propel markets strongly higher. Currently investors are very optimistic about the U.S.–China trade negotiations as well potential Brexit resolution," said Marija Veitmane, multi-asset strategist at State Street.

"However, we are yet to see concrete details on either deal. We expect markets to sell off sharply should those hopes be disappointed," she added.

The Australian dollar was up 0.5% at 0.6796 per U.S. dollar after rising to a two-week high of 0.6804 overnight. The yuan was also higher at 7.0938 against the greenback after hitting a three-week high in the Asian trading session of 7.0890 .

The safe-haven yen on the other hand slipped to 108.28 per dollar, its weakest since Oct. 1, as investors' risk appetite improved.

The Swedish crown, which has been beaten up by the prospects of dismal global economic growth as result of trade tensions, got pushed up to a four-day high of 10.8065 against the euro , though its long-term weak trend remains unbroken for now.

The euro edged up 0.3% to $1.1033 , mirroring the three-week high it reached on Thursday against the dollar, which usually appreciates as a safe-haven currency when trade relationships worsen.

Sterling surged to a three-month high of $1.2589 and a five-month high of 87.65 pence against the euro on the back of "constructive" talks in Brussels between British and European Union Brexit negotiators.

"Good news is always welcome, but at this stage it remains just that: news," said Dean Turner, an economist at UBS Wealth Management.

"The chances of a deal seem to have improved and the pound has moved accordingly but hurdles still remain. Time to thrash out the details of the deal is tight, and then there is the question of parliamentary approval," Turner said.


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