Trade optimism supports dollar vs. yen, boosts Aussie

By Tomo Uetake

SYDNEY (Reuters) - The dollar hovered near a six-month high versus the Japanese yen while the Australian dollar climbed to its strongest since July on Friday, buoyed by easing Sino-U.S. trade tensions.

The optimism around prospects for a Phase 1 trade deal reduced demand for safe-haven currencies such as the yen, but with global currency markets in a holiday mood after Christmas Day on Wednesday, overall trading activity was mostly subdued.

Beijing said on Wednesday it is in close touch with Washington on a trade deal signing ceremony, a day after U.S. President Donald Trump said he and Chinese President Xi Jinping will have a ceremony to sign the agreement.

Overnight, the dollar rose to as high as 109.68 yen <JPY=> against the safe-haven Japanese currency, a one-week high and not far from 109.73 yen, its late May peak brushed earlier this month. In late Asian trade, the pair was last quoted at 109.50 yen, down 0.1% on the day.

"Although the overnight gains in the dollar were partly erased by dipping Treasury yields after the seven-year note auction, U.S.-China trade optimism has put a solid floor under the dollar," said Toshinobu Chiba, chief portfolio manager for fixed income at Nissay Asset Management.

"In any case, I don't expect any large moves either way in markets today as trading remains subdued due to the holiday week."

U.S. Treasury yields slipped on Thursday after the Treasury Department sold $32 billion in seven-year notes to strong demand. [US/] The 10-year <US10YR=RR> last stood at 1.894%, its lowest level in 1-1/2 weeks.

The trade-sensitive Aussie dollar <AUD=D4> firmed to as high as $0.6956 against its U.S. counterpart, its five-month high.

The euro last stood at $1.1118 <EUR=> versus the greenback, 0.2% higher on the day.

China's yuan inched lower against the dollar on Friday, pressured by corporate demand for dollars and speculation of a possible cut to bank reserve requirements ahead of the new year.

Markets debated whether the central bank would lower the cash banks must hold as reserves any time soon after Premier Li Keqiang said earlier this week the government would consider rolling out more measures. [CNY/]

The yuan weakened 0.1% in offshore trade to 6.9967 yuan per dollar <CNH=>.

Elsewhere, sterling traded at $1.2993 <GBP=>, a shade higher than the levels before the Christmas holiday but still way below its Dec. 13 peak of $1.3514.

(Editing by Jacqueline Wong and Stephen Coates)