Dollar up vs riskier currencies amid trade tensions

NEW YORK (Reuters) - The dollar rose slightly against a basket of currencies on Tuesday, snapping a four-day losing streak as traders worried about mounting global trade tensions unwound bets on high-yielding currencies like the Australian and Canadian dollars, whose economies are heavily trade dependent.

The dollar index, which measures the greenback against a basket of six currencies, was up 0.37 percent at 94.628. The index slipped 0.9 percent over the last four sessions.

U.S. and European stock markets steadied on Tuesday, a day after tumbling on conflicting signals from the Trump administration over proposed restrictions on foreign investment in U.S. technology companies, along with news that recently imposed import tariffs are starting to disrupt supply chains. China was in bear market territory.

“The market is still scratching its head on which way to take major pairs,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

“There is a clear implication that potential trade war have on high-yielding currencies, riskier currencies, on currencies whose economies are highly sensitive to trade,” he said.

The dollar benefited from concerns about a global trade war, particularly against trade-sensitive currencies like the Canadian dollar, the South African rand and the Australian dollar.

“But when it comes to the majors, for example the euro-dollar, the market is less certain about what a trade war would mean,” said Esiner.

The euro fell 0.43 percent at $1.1652. The greenback which fell 0.2 percent against the safe-haven Japanese yen on Monday, recouped losses to trade up 0.15 on Tuesday.

With tensions rising, the Chinese currency weakened to a six-month low as expectations grew that Beijing will let the yuan weaken more in coming days to soften the impact of tariffs by the United States.

“This is yet another tool at the disposal of policymakers in Beijing and it’s something that’s not been in focus over the past couple of years - the undervaluation of the yuan against the dollar,” said Esiner.

“It’s not a big issue for now, but could become more of an issue for the dollar if the U.S. administration responds in kind,” he said.

Meanwhile, the pound was 0.32 percent lower versus the dollar after traders saw as dovish comments from incoming Bank of England rate-setter John Haskel about the uncertainty of the impact of Brexit on the economy.

The Turkish lira weakened further against the dollar amid persistent concerns over the future course of monetary and economic policy following President Tayyip Erdogan’s victory in Sunday’s presidential election.