By Stanley White
TOKYO (Reuters) - The U.S. dollar rose against the yen on Tuesday thanks to growing optimism the United States and China are on the verge of reaching a preliminary agreement to scale back their bruising trade war.
The yen and the Swiss franc, two currencies that are often bought as safe havens during times of economic or political strife, nursed losses as investors became more comfortable taking on risk.
The Australian dollar traded near its lowest in about a week before a Reserve Bank of Australia (RBA) meeting later on Tuesday. Monetary policy is likely to be kept steady, but an accompanying statement may provide clues to how much further rates could fall.
In recent days, Beijing and Washington have given encouraging signs of progress in trade talks. The U.S. government is considering dropping some tariffs on Chinese goods, the Financial Times reported on Monday.
Bloomberg also reported that China is reviewing locations in the United States where he could sign a so-called "Phase 1" trade deal with U.S. President Donald Trump.
Both countries have slapped tariffs on each other's goods in a trade war that has dragged on for 16 months and raised the specter of a global recession.
Any progress in resolving the row could potentially boost the dollar and riskier assets, ease concern about the economic outlook and reduce the need for aggressive monetary easing.
"The mood is very much risk on, so that's how investors will approach the market," said Minori Uchida, head of global market research at MUFG Bank in Tokyo.
"We're getting some positive news about trade talks. This is all supportive of the dollar, and this trend could continue."
The dollar rose 0.12% to 108.70 yen in early trade in Asia, adding to a 0.4% gain on Monday.
The U.S. currency was a shade higher at 0.9886 Swiss Franc following a 0.2% gain in the previous session.
The dollar index (DXY) against a basket of six major currencies stood at 97.556, close to its highest in almost a week.
In the offshore market, the yuan edged slightly higher to 7.0255 per dollar underpinned by hopes for a trade deal.
Currency traders are also waiting for the U.S. ISM non-manufacturing report due later on Tuesday, which is forecast to show activity accelerated slightly in October.
The U.S. Federal Reserve has cut interest rates three times this year, but recent data suggest the U.S. economic outlook is not as bad as some had feared - another positive for the dollar.
The Australian dollar was little changed at $0.6888 but was up 0.17% to 74.88 yen (AUDJPY=).
Australia's central bank is expected to leave its cash rate at a record low of 0.75% on Tuesday, with the RBA's statement set to possibly signal how much further interest rates will fall.
Many economists expect the RBA to cut rates at least once early next year to help revive inflation and a slowing economy.