FOREX-Trade optimism supports dollar vs. yen, boosts Aussie

* USD/JPY stays not far from 6-mth peak, AUD hits 5-mth high
* U.S.-China trade optimism supports mild 'risk-on'
sentiment
* No big moves expected as holiday-thinned trade persists
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tomo Uetake
SYDNEY, Dec 27 (Reuters) - The dollar hovered near a
six-month high versus the Japanese yen while the Australian
dollar climbed to its strongest since July on Friday, buoyed by
easing Sino-U.S. trade tensions.
The optimism around prospects for a Phase 1 trade deal
reduced demand for safe-haven currencies such as the yen, but
with global currency markets in a holiday mood after Christmas
Day on Wednesday, overall trading activity was mostly subdued.
Beijing said on Wednesday it is in close touch with
Washington on a trade deal signing ceremony, a day after U.S.
President Donald Trump said he and Chinese President Xi Jinping
will have a ceremony to sign the agreement.
Overnight, the dollar rose to as high as 109.68 yen JPY=
against the safe-haven Japanese currency, a one-week high and
not far from 109.73 yen, its late May peak brushed earlier this
month. In late Asian trade, the pair was last quoted at 109.50
yen, down 0.1% on the day.
"Although the overnight gains in the dollar were partly
erased by dipping Treasury yields after the seven-year note
auction, U.S.-China trade optimism has put a solid floor under
the dollar," said Toshinobu Chiba, chief portfolio manager for
fixed income at Nissay Asset Management.
"In any case, I don't expect any large moves either way in
markets today as trading remains subdued due to the holiday
week."
U.S. Treasury yields slipped on Thursday after the Treasury
Department sold $32 billion in seven-year notes to strong
demand. US/ The 10-year US10YR=RR last stood at 1.894%, its
lowest level in 1-1/2 weeks.
The trade-sensitive Aussie dollar AUD=D4 firmed to as high
as $0.6956 against its U.S. counterpart, its five-month high.
The euro last stood at $1.1118 EUR= versus the greenback,
0.2% higher on the day.
China's yuan inched lower against the dollar on Friday,
pressured by corporate demand for dollars and speculation of a
possible cut to bank reserve requirements ahead of the new year.
Markets debated whether the central bank would lower the
cash banks must hold as reserves any time soon after Premier Li
Keqiang said earlier this week the government would consider
rolling out more measures. CNY/
The yuan weakened 0.1% in offshore trade to 6.9967 yuan per
dollar CNH= .
Elsewhere, sterling traded at $1.2993 GBP= , a shade higher
than the levels before the Christmas holiday but still way below
its Dec. 13 peak of $1.3514.

(Editing by Jacqueline Wong and Stephen Coates)