Dollar slips as market tracks U.S.-China relations

The U.S. dollar weakened slightly early Thursday after the arrest of an executive of Chinese telecommunications firm Huawei Technologies, at the request of the U.S., sparked new worries about U.S.-China relations.

Huawei CFO Meng Wanzhou was arrested in Vancouver, Canada, for allegedly violating sanctions against Iran. Chinese authorities have demanded her release, saying she didn’t violate U.S. or Canadian law.

While the U.S. and China seemed to approach a resolution of their trade spat following the G-20 summit last weekend, market hopes are now shaken. Most recently, market participants had also grown cautious of the fact that few details of a potential deal were known after President Donald Trump and Chinese Premier Xi Jinping met at the G-20.

“The latest wave of risk-off attack began at the open of futures [late Sunday] amid the announcement of Canada’s arrest of Huwawei’s chief financial officer on behalf of the U.S.,” wrote Adam Button, currency analyst at Intermarket Strategy, adding that it undid the work of any trade deal being done between China and the U.S., which was now reflected in the markets.

U.S. stock futures, including for the Dow Jones Industrial Average YMZ8, -1.43% and S&P 500 index ESZ8, -1.29% pointed to a lower open.

The ICE U.S. Dollar Index DXY, -0.07% was down 0.1% at 97.008. The buck’s main rival, the EURUSD, +0.1763% was little changed at $1.1348.

The Australian dollar USDAUD, +0.8322% — a proxy for China and global growth — was the worst performing among development-market currencies on the block on Thursday, as market participants expect U.S.-China trade relations to remain on edge following the arrest. One Australian dollar bought $0.7205, down 0.9%.

On Wednesday, the Aussie had been sharply lower versus the buck, as its third quarter gross domestic product print underperformed expectations.

Wednesday’s U.S. economic reports are due along with those on Thursday, following Wednesday’s day of mourning for former President George H.W. Bush’s death. The data deluge kicks off with the ADP employment report for November at 8.15 a.m. Eastern.

A speech by Bank of Canada Gov. Stephen Poloz at 8.50 a.m. Eastern is also on the schedule in North America. On Wednesday, the BOC kept its interest rates unchanged but warned of slowing momentum in Canada’s economy on the back of the drop in oil prices CLF9, -3.21% and lower business investments related to trade worries over the summer.

Versus the Canadian dollar USDCAD, +0.4942% the greenback was stronger, last buying C$1.3423, up 0.5%. The loonie, as the Canadian currency is also known, has dropped to its lowest level since June of 2017 after hitting a six-month low on Wednesday, according to FactSet data.

In European currencies, the British pound GBPUSD, +0.2434% edged higher once again, as investors become cautiously optimistic that the chance of a hard Brexit is diminishing. Sterling last fetched $1.2749, compared with $1.2735.

Check out: Theresa May absorbed three sharp blows Tuesday as steward of U.K.’s Brexit process

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