Dollar slips vs yen as Canada trade deal's boost to risk appetites fades

© Reuters. FILE PHOTO: Four thousand U.S. dollars are counted out by a banker at a bank in Westminster

By Daniel Leussink

TOKYO (Reuters) - The dollar retained gains against a basket of currencies on Tuesday while slipping off a more than 10-month peak against the yen as the boost to risk appetites from the U.S.-Canada trade deal to replace the North American Free Trade Agreement faded.

Traders awaited the outcome of a Reserve Bank of Australia monetary policy meeting. The RBA is expected to stretch its record spell of rates at 1.5 percent well into next year, according to a Reuters poll, with a 25 basis-point hike not expected before end-2019.

The dollar index (DXY), which measures the greenback against a basket of six peers, edged higher to 95.322, trading near a three-week high of 95.373 reached the previous session.

While fears about international trade conflicts between the United States and major trading partners including China have lifted the dollar 3.4 percent this year, an increasingly confident U.S. Federal Reserve has also boosted the greenback.

The newly minted United States-Mexico-Canada Agreement, announced on Sunday, preserves a $1.2 trillion open-trade zone that was on the brink of collapse after nearly a quarter century.

Ayako Sera, market economist at Sumitomo Mitsui Trust Bank, said the U.S trade representative "was occupied solving the problem in relation to NAFTA up until now".

"Japan and the United States can really kick off their trade negotiations now that has ended," she said.

U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe agreed on Sept. 27 to start fresh trade talks.

Against the Japanese yen , the dollar rose 0.06 percent to 113.92 yen on Tuesday.

Following the U.S.-Canada trade deal, the yen fell as low as 114.06 per dollar, its weakest since November 2017.

The greenback is now up just over 1 percent against the yen this year. It strengthened 2.3 percent against the Japanese currency in September.

"If we close this week above 114, that's going to be a significant milestone," said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

The Australian dollar , meanwhile, was 0.05 percent higher at $0.7228 shortly before the RBA's policy decision.

Elsewhere, the Canadian traded at C$1.2804 per dollar, holding onto most of its 0.7 percent gains the previous day.

The euro (EUR=) was down 0.06 percent against the greenback at $1.1573 on renewed concerns about Italy's budget deficit.

Italian Deputy Prime Minister Luigi Di Maio accused European Union officials of deliberately upsetting financial markets with negative comments about Italy's budget plans.

He was taking aim at European Economic Affairs Commissioner Pierre Moscovici, who earlier said that Rome's plans were "obviously" deviating from EU rules on fiscal discipline.