Plans for trade talks cheer risk currencies, hit safe-haven yen

China's yuan and the Australian dollar rallied after news on Thursday that China-US trade talks would resume next month, but investors sold the safe haven yen, even though any de-escalation in the trade war would benefit Japanese exporters.

Other factors helping support risk sentiment, were reduced chances of Britain crashing out of the European Union on Oct. 31 without a deal, and a potential breakthrough in the Hong Kong political crisis following a move to withdraw an extradition bill that had sparked mass protests.

Sterling held onto gains made overnight, after the British parliament voted to stop a "no deal" Brexit and to prevent Prime Minister Boris Johnson from calling a snap election that could have given him the mandate to keep alive the threat of "no deal".

It still leaves Brexit up in the air, with possible outcomes still ranging from a no-deal exit to abandoning the whole endeavor.

The pound sat around $1.2241 and the euro at $1.1027, mostly holding on to overnight gains.

For the broader market, the resumption of China-US trade talks was the main factor at play. Talks will be held in Washington in early October, China's commerce ministry said.

"This news has injected a fair amount of optimism in markets," said Prashant Newnaha, senior rates strategist at TD Securities in Singapore.

"It does seem that the markets were positioning more bearishly, and now we've gotten this potential good news and the markets are running with it," he said, adding global economic indicators had also recently been showing some green shoots.

Sentiment has been skittish, however, and some analysts sounded a note of caution.

"The US is still going to raise tariffs next month and December, as far as we know," said Joe Capurso, senior currency strategist at the Commonwealth Bank of Australia in Sydney.

"That's a negative for the world economy and the Chinese economy."

Against a basket of currencies, the dollar lifted a little from a one-week low to 98.482.

The Australian and New Zealand dollars, Chinese yuan and South Korean won all jumped against the dollar, while the yen fell nearly 0.4 percent to 106.75 per dollar, its weakest in more than three weeks.

The Australian dollar touched a one-month high of $0.6825, seen as a technical resistance level while the New Zealand dollar hit a one-week peak of $0.6377. The trade-exposed won climbed the most of Asia's currencies, rising about 0.5 percent to 1198.00 per dollar.

The Canadian dollar spiked sharply to C$1.3344 per dollar after the Bank of Canada left interest rates on hold and sounded less dovish than the market had expected.