January 9, 2019 / 8:50 AM / 3 months ago

FOREX-Euro, commodity-linked currencies boosted by U.S.-China trade optimism

* Beijing and Washington agree to extend trade talks

* Australian, Canadian, New Zealand dollars all up

* Investor mood much more positive than last week

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Tommy Wilkes

LONDON, Jan 9 (Reuters) - The euro and commodity-linked currencies rose on Wednesday as optimism over U.S.-China trade negotiations improved investor sentiment and encouraged some selling of the dollar.

Expectations of more easing in China also supported markets, with Asian shares rallying and European stocks rising at the open.

Adam Cole, chief currencies strategist at RBC, said those factors were giving a “better tone for risk this morning. It’s all about a general risk-on mood.”

News that Beijing and Washington had agreed to extend trade talks in Beijing for an unscheduled third day on Wednesday boosted oil prices, with U.S. West Texas Intermediate crude oil futures topping $50 a barrel for the first time this year.

That, in turn, helped spur demand for riskier assets and commodity-linked currencies.

The euro rose 0.2 percent to $1.1464 as increased demand for currencies deemed riskier knocked the dollar lower.

An unexpected fall in German industrial output for the third straight month had weighed on the euro on Tuesday. The drop underscored concern about a slowdown and the European Central Bank’s caution as it tries to wean the region off stimulus.

The dollar index traded down 0.2 percent at 95.753 .

The Australian dollar, considered a barometer of sentiment towards China, rose 0.2 percent to $0.7155. The Aussie has now risen off near-decade lows below $0.68 reached earlier this month.

The Chinese yuan gained 0.3 percent to 6.8341 in offshore markets.

The Canadian dollar also benefited, rising more than 0.2 percent to C$1.3242.

“Markets are finding comfort in the fact that the trading level of West Texas Intermediate futures has shifted above $50 a barrel,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities. “Commodity-linked currencies are performing strongly as a result.”

The Norwegian crown was up more than a quarter of a percent. The New Zealand dollar gained 0.6 percent to $0.6760 .

The rally in riskier assets has accelerated since last Friday when Federal Reserve Chairman Jerome Powell said he was aware of risks to the economy and would be patient and flexible in policy decisions this year.

That eased concern the Fed would be raising rates as the U.S. economy weakened.

Against the yen, the dollar gained a tenth of a percent to 108.85 yen per dollar. (Additional reporting by Daniel Leussink)

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