FOREX-Aussie slips towards 10-yr low as U.S.-China trade hopes ebb

* Dollar near 4-week high vs yen but still down on month
* U.S. currency supported by month-end rebalancing
* Euro capped by ECB stimulus hopes
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Hideyuki Sano
TOKYO, Aug 30 (Reuters) - The Australian dollar slipped
towards a 10-year trough while the yen hovered off its lows on
Friday, as renewed hope that China and the United States could
get their negotiations back on track began to fade.
The U.S. currency was also supported by investors' month-end
rebalancing needs, which has helped lift the dollar index =USD
to its highest level in a month.
The index is last up 0.1% at 98.555.
The Australian dollar, often seen as a proxy bet on the
Chinese economy, fell 0.31% to $0.67095 AUD=D4 , about a third
of a cent above its 10-year low of $0.66775 hit on Aug. 7.
Adding to the Aussie's woes, the country's building
approvals unexpectedly plunged to a six-year low.
The New Zealand dollar dropped 0.30% to a four-year low of
$0.6290 NZD=D4 . It is the worst performing G10 currency this
month with a fall of 4.1%.
The yen held flat at 106.49 per dollar JPY= , off this
week's low of 106.68 hit the previous day.
Risk assets got a mild lift on Thursday after China's
commerce ministry said Beijing and Washington were discussing
the next round of face-to-face talks in September, but the
effect was short-lived. Washington is due to start imposing 15% tariffs on $125
billion worth of goods from China on Sunday, affecting a vast
number of consumer items from smart speakers to sneakers.
Investors fear the intensifying trade dispute could lead the
U.S. economy into a recession, a scenario that has become more
of a reality this week after the U.S. bond yield curve inverted,
a highly reliable indicator of a recession.
"The talking point is still the U.S. yield curve inversion
and whether the U.S. economy heads into a recession...In short,
the atmosphere is not so good," said Bart Wakabayashi, Tokyo
branch manager of State Street.
In addition, political risks from the UK to Hong Kong and
the Middle East added to risks for the global economy and kept
many investors on edge.
Despite the dollar's rebound against the yen this week, the
Japanese currency is the best performer among major currencies
this month, rising 2.2% so far.
The second best was the Swiss franc CHF= , which has gained
0.7% so far this month, to 0.9879 per dollar.
"There are so many geopolitical risk factors now. Not to
mention U.S.-China trade conflicts, we have Brexit, Hong Kong
and the Middle East. So we should expect the yen to jump from
time to time," said Minori Uchida, chief currency analyst at
MUFG Bank.
The euro eased 0.12% to $1.1043 EUR= , near a four-week low
of $1.1042 touched on Thursday, hurt by a sluggish euro zone
economy and likely monetary easing from the European Central
Bank (ECB) next month.
Christine Lagarde, the ECB's next president, said on
Thursday the central bank still has room to cut interest rates
if needed, although this may pose financial stability risk.
German inflation slowed in August and unemployment rose,
data showed on Thursday, adding to signs that Europe's largest
economy is running out of steam and cementing expectations of a
new ECB stimulus package next month. Sterling traded at $1.2183 GBP=D4 , on course to post its
first weekly loss in three weeks on growing worries about a
no-deal Brexit at the end of October.
British Prime Minister Boris Johnson suspended parliament
for more than a month to dodge a possible no-confidence vote and
take Britain out of the European Union on the Oct. 31 deadline.

(Editing by Shri Navaratnam and Jacqueline Wong)