FOREX-U.S.-China trade progress boosts higher-risk currencies

* Aussie gains to one-week high
* U.S. dollar clipped by falling bond yields
* Investment sentiment solid in early trading
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

LONDON, May 8 (Reuters) - Currencies closely linked to
global trade rose on Friday boosted by news that U.S. and
Chinese negotiators had agreed to strengthen cooperation over a
trade deal and as more governments slowly reopened their
economies.
Top U.S. and Chinese trade representatives discussed their
Phase 1 trade deal on Friday with China saying they agreed to
improve the atmosphere for its implementation and the United
States saying both sides expected obligations to be met.
The discussion in a telephone call comes amid escalating
tension between the countries, exacerbated U.S. criticism of
China's handling of the novel coronavirus outbreak.
The Australian dollar, which is closely correlated with
sentiment towards China and the global economy, rose 0.3% to
$0.6516 AUD=D3 after earlier hitting a one-week high.
Several emerging markets currencies were also higher.
Australia will ease social distancing restrictions
implemented to slow the spread of the coronavirus in a
three-step process, Prime Minister Scott Morrison said on
Friday, with the aim of removing all curbs by July. Some analysts, however, were nervous about the Aussie.
"It is not only uncertain how deep the collapse of the
economy turned out to be but also when the recovery is going to
come and how pronounced it is going to be ... The uncertainty
thus remains high and the Aussie vulnerable," said Commerzbank
analyst Thu Lan Nguyen.
The U.S. dollar struggled for direction as investors defied
a broader sense of doom around upcoming U.S. employment data and
focused on the trade news and gradual lifting of lockdowns.
The U.S. currency was undermined by a further hit to its
yield attraction as U.S. money markets priced in a small chance
of negative interest rates next year.
"The possibility of negative rates is modestly bearish for
the dollar, given limited market pricing to date and ongoing
concerns about the US 'debasing' the dollar," wrote Ebrahim
Rahbari, chief G10 FX strategist at Citi in New York.
But he added forceful and aggressive U.S. fiscal and
monetary stimulus was likely to boost the recovery in the United
States and pull in capital flows, supporting the dollar.
The dollar's index against a basket of six other major
currencies was unchanged at 99.851 =USD .
The dollar's retreat against riskier currencies reflected a
recovery in risk appetite as global shares rallied, with the
Nasdaq index now wiping out its losses this year.
On top of aggressive monetary easing around the world, hopes
of economic normalisation are supporting the mood.
The euro was 0.1% lower at $1.0823 EUR= , but held above
Thursday's near two-week low of $1.07665 though it was down more
than 1% on the week.
Against the yen, the dollar bounced back to 106.32 yen
JPY= , above a seven-week low of 105.985 touched on Wednesday.