The dollar inched higher on Wednesday after dipping to a four-week low overnight, but relief over a U.S-Mexico trade deal was dimmed by concerns that the China-U.S. trade war will drag on for some time. The dollar index against a basket of six major currencies was barely changed at 94.720 as of 0315 GMT, after trading as low as 94.434 during the U.S. session, its lowest since July 31. The greenback retraced its losses in U.S. trade after the U.S. consumer confidence index came in higher than expected, reaching its highest level since October 2000. Minori Uchida, chief currency strategist at MUFG Bank in Tokyo, said investors were closely watching developments in the Sino-U.S. trade dispute. The deadline for public comment on U.S. President Donald Trump's tariffs on another $200 billion of Chinese goods is on Sept. 5, with the new measures possibly taking effect later that month. "I think that the renminbi and Shanghai Composite Index will receive pressure to the downside. Currencies like the Australian dollar and other Asian currencies will follow the renminbi's weakness," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. The United States and Mexico agreed earlier this week to overhaul NAFTA, putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the three-country pact. MUFG's Uchida said the dollar's recent slide has been softened by gains on U.S. stock markets even as investors unwind more of their safe-haven bets on the greenback. "The dollar has correlated strongly with stocks compared to interest rates. As long as stocks are performing well, I don't think the dollar is going to decline so much," he said. On Wednesday, the U.S. currency was nearly flat at 111.25 yen following a gain of about 0.1 percent on Tuesday. It traded in a 20-bip range of 111.12 to 111.32 yen. The euro was barely changed at $1.1694 after rising against the greenback during the previous three sessions, despite concerns over Italy where political uncertainty pushed up bond yields toward three-month highs. Mizuho's Yamamoto added that short-term traders are shifting their focus to emerging market currencies as volatility for major currency pairs such as dollar/yen was low. "When the currency pairs don't move, speculators tend to go away because there is a limited chance to make money in low volatility currencies," Yamamoto said. "I'm afraid that emerging market currencies like the Brazilian real, Turkish lira, Russian rouble and the South African rand may receive stronger pressures." The Australian dollar rose about 0.1 percent to $0.7344, after losing about 0.1 percent on Tuesday. China's offshore yuan was nearly flat at 6.8091 yuan per dollar, trading in a tight range for the third session in a row after the central bank announced fresh steps on Friday to stabilise the currency. Source: Reuters
