* Optimism on trade as investors hope for Sino-U.S. progress
* Dollar holds overnight gains on yen, Aussie supported
* Fed cut expected, rhetoric to set tone
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
HONG KONG, Oct 29 (Reuters) – Hopes for an easing in Sino-U.S. tensions buoyed trade-exposed Asian currencies on Tuesday, while growing expectations the U.S. Federal Reserve could take a wait-and-see approach to further easing underpinned the dollar.
Most moves were modest, though, as caution tempered the mood. The biggest gainer was the New Zealand dollar, rising 0.3% to $0.6364. The safe-haven currencies of the Japanese yen and Swiss franc each eased slightly.
“Global risks remain but have shown signs of subsiding,” Philip Wee, FX strategist at Singapore’s DBS Bank said in a note.
“China-U.S. trade tensions have stopped escalating … the Fed has reasons to sound less dovish on a ‘half-full’ narrative for the U.S. economy.”
U.S. President Donald Trump had said a trade agreement looked to be ahead of schedule on Monday, without detailing the timing. The United States also said it was studying whether to extend tariff suspensions due to expire in December.
That followed remarks late last week from both U.S. and Chinese officials saying they were “close to finalising” a deal, driving equities and bond yields higher on Monday. The appetite for risk remained on Tuesday.
The Aussie hit its highest since Thursday, touching $0.6851, while the greenback held on to its overnight progress against the yen to stand at 108.96 yen per dollar, just below a three-month high.
China’s central bank lifted its official yuan midpoint to the highest level in over two months on Tuesday, and the currency edged higher to 7.0586 per dollar.
The dollar was steady against the euro at $1.1094 and more or less flat against a basket of currencies at 97.786.
Beyond the trade headlines, the major focus this week is the Fed meeting. The U.S. central bank is expected to cut rates for a third time in a row when it concludes its two-day meeting on Wednesday.
Investors are watching for any indication that further cuts are likely, with futures pricing suggesting more easing is expected in 2020. If that is not foreshadowed, traders expect the dollar to rise.
“The forward guidance will be the thing,” said Westpac analyst Imre Speizer in Auckland.
“It still looks like a done deal that they will cut, but then the risk is that they might characterise that as just one more insurance move … the market will have to take out the pricing it’s got for future dates.”
The British pound, meanwhile, nudged lower to $1.2851, with Brexit hanging in the balance.
The European Union has agreed to delay Britain’s exit for up to three months, but the country is politically paralysed and overnight parliament rejected Prime Minister Boris Johnson’s third attempt to schedule a Dec. 12 election.
Johnson has said he would try again, by a different legislative route that would only require a simple majority, rather than a two-thirds majority. (Reporting by Tom Westbrook; Editing by Richard Pullin and Stephen Coates)