FOREX-Dollar retreats as risk appetite returns at year-end

* Dollar index up less than 1% for the year
* Australian dollar rises on U.S.-China trade optimism

(Updates to U.S. afternoon trading)
By Saqib Iqbal Ahmed
NEW YORK, Dec 27 (Reuters) - The U.S. dollar weakened across
the board on Friday as optimism about the outlook for a
U.S.-China trade deal lifted investors' appetite for risk,
sapping safe-haven demand for the greenback, in light end-year
trading.
The dollar index .DXY , which measures the greenback
against six other major currencies, was 0.6% lower at 96.951.
"The dollar has declined against a backdrop of coursing
risk-on sentiment in global equity markets with investors
anticipating the U.S.-China Phase 1 trade deal to be signed-off
on soon, which will come amid a world of expansive monetary
policy and benign inflation," analysts at Action Economics said
in a note.
Traders returned from their Christmas and Boxing Day break
to digest comments from Beijing that it was in close contact
with Washington about an initial trade agreement. Earlier, U.S.
President Donald Trump had talked up a signing ceremony for the
recently struck Phase 1 trade deal. With Friday's loss, the dollar index's gains for the year
have shrunk to under 1%, putting it on pace for the smallest
annual change in six years.
On Friday, the euro rose 0.76% to hit a 10-day high, its
best day in nearly five months.
"The EURUSD is particularly sensitive to global growth
upgrades, and with trade optimism swinging positively for global
growth, the Euro's trend-following dynamics could start to argue
for a push above," Stephen Innes, chief Asia market strategist
at AxiTrader, said in a note.
Bleak European economic data had prompted hedge funds to bet
on a weaker euro during 2019, but some strength in recent
Eurozone data, along with weakness in other currencies, has
lifted the euro.
The common currency has risen 2.3% against the greenback so
far this quarter.
On Friday, trade-sensitive currencies were stronger, with
the Australian dollar AUD= rising 0.53% and the New Zealand
dollar NZD= up 0.52%.
The offshore yuan was about flat on the day against the U.S.
currency at 6.9917 yuan per dollar CNH= .
The Canadian dollar CAD= was trading 0.4% higher against
the greenback at 1.3069 to the U.S. dollar, or 76.49 U.S. cents.
The commodity linked currency has strengthened in recent
sessions helped by higher oil prices.
Sterling was 0.78% higher after European Commission
President Ursula von der Leyen said the European Union may need
to extend the deadline for talks about a new trade relationship
with Britain. Even with the recent UK general election smoothing the path
for Britain's exit from the European Union, Britain's ability to
strike a new trading deal between the EU in a relatively short
span of time remains a concern for some investors.
"We anticipate that the Brexit rubber hitting the road will
curtail the pound's upside potential in 2020," analysts at
Action Economics said.

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Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
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