Asian currencies rise on US-China trade deal, shares not so much

Investors, especially in China, remain wary as doubts and tariffs continue to linger over US-China trade relations.

US China trade deal
Chinese Vice Premier Liu He and US President Donald Trump shake hands after signing the first phase of the US-China trade deal in Washington, DC [File: Kevin Lamarque/Reuters]

Asian currencies inched higher on Thursday, supported by hopes the first phase of the US-China trade deal could herald warmer relations between the world’s two biggest economies and help to revive global growth.

“The message is actually very, very simple: Tariffs are not going up this year. And that’s really all we need,” said Ken Peng, Citi’s head of Asia investment strategy, told Reuters.

Beijing and Washington touted the Phase 1 deal, signed overnight at the White House, as a step forward in resolving their bitter 18-month trade dispute.

US Vice President Mike Pence fed optimism for progress, saying further Phase 2 discussions had already begun.

That put the New Zealand dollar on track for its first intra-day rise in a week and its 0.2 percent lift led small but broad-based gains. It last traded at $0.6635.

The Chinese yuan, the most sensitive currency to the US-China trade relationship, drifted back towards a six-month peak hit on Tuesday, adding 0.1 percent to 6.8842 per US dollar.

The safe-haven Japanese yen was a fraction softer at 109.92 per US dollar, while the Australian dollar held a tad firmer at $0.6908.

The greenback was also marginally lower against the euro and pound, with analysts figuring a bounce back in the world economy could be negative for the US dollar.

Against a basket of currencies, the US dollar sat at 97.195, close to a week low.

The centrepiece of the trade deal is a pledge by China to buy at least an additional $200bn worth of US farm products and other goods and services over two years.

The US will also cut by half the tariff rate it imposed on September 1 on a $120bn list of Chinese goods, to 7.5 percent.

Yet market exuberance was checked because much of this was priced in already and because it addresses few of the issues that led to the trade conflict in the first place.

“There’s been a lot of criticism of this particular deal,” said Mike Hanna, Al Jazeera correspondent in Washington, DC. The most prominent of these arguments is that the limited deal does not address Beijing’s subsidies for state-owned companies and allegations of Chinese state control in cybersecurity, he said.

On top of that, the agreement does not fully eliminate tariffs, is vague on enforcement and many analysts are sceptical of how realistic the purchase targets are.

In Asia, stock markets were mixed as investors assessed the news. Shares in Hong Kong were largely flat, while Australian equities were modestly higher along with those in South Korea. Key stock exchange gauges in Japan and Shanghai slipped.

US futures were little changed after the S&P 500 Index Wednesday notched a fresh all-time high. Treasuries held gains, with 10-year yields below 1.8 percent, and US oil hovered about $58 a barrel.

The price of Brent crude oil gained about 45 cents or 0.7 percent to trade at $64.45 per barrel.

“Markets here in Asia are surprisingly calm … in Beijing, that really reflects the response to the deal,” Al Jazeera correspondent Katrina Yu said.

The lack of a “celebration” in response to the trade deal was partly because it has been long expected, and also because “it’s seen here in Beijing as a huge compromise”, Yu said.

China’s pledge to buy at least $200bn of US goods and services over the next two years was met with scepticism as the sum was higher than a baseline of $186bn in purchases in 2017 before the US began imposing punitive tariffs.

Although gold was flat, the Swiss franc, which is seen as a safe-haven investment, rallied overnight to a 15-month high of 0.9680 per dollar and points to the level of caution among investors, say analysts.

“I’m not sure that there’s any hidden gold nugget,” Westpac FX analyst Sean Callow told Reuters.

“There’s a sense of markets having traded off the positive vibes of the trade agreement for long enough, and it’s very hard to see where the upside is from here,” he said.

“If there is a step towards freer trade and lower tariffs, then it’s obviously not going to happen anytime soon.”

Source: Al Jazeera, News Agencies