Dollar pressured as Obama tours China

By Anirban Nag

SYDNEY (Reuters) - The U.S. dollar drifted lower in Asia on Monday, heading into a week that is likely to see increased rhetoric on currencies from both China and visiting U.S. President Barack Obama.

The United States and China sparred over exchange rates at a meeting of Asia Pacific leaders on Sunday, a move that quashed speculation China may allow some further yuan appreciation in coordination with Obama's first trip to Beijing.

That could lead to some short-covering in the euro/yen pair later in the session, traders said. The euro had fallen in the previous session against the Japanese currency after shorts had been initiated on the hopes that a rising yuan will take some pressure off the euro.

Market talk has been swirling that a rising yuan would lift other currencies across the region and take some of the upward pressure seen in the euro against the U.S. dollar.

"We suspect that (further) yuan appreciation would leave eurozone officials more comfortable with euro trading above $1.5000 since the region would receive an offsetting boost in competitiveness against Asian currencies," said John Kyriakopoulos, currency strategist at National Australia Bank (NAB).

The euro inched up to $1.4930 from $1.4916 late on Friday. It also held steady on the yen at 133.71 yen, recovering from a low of 132.80 yen on Friday.

The dollar index .DXY was down at 75.22, well within a downtrend channel that stretches back to May. It had fallen broadly on Friday after data showed a wider U.S. trade deficit and weaker consumer sentiment.

The U.S. trade gap unexpectedly widened by 18.2 percent in September, as imports from China increased. This data came as Obama told other Asia Pacific leaders in Singapore that failure to rebalance the global economy would lead to further crisis.