By Saikat Chatterjee
LONDON (Reuters) – The dollar was broadly on the back foot on Tuesday with the New Zealand dollar leading gainers against the greenback as a broad rally in Asian equities spilled over into currency markets.
Despite expectations of a trade deal relatively thin from a resumption of trade talks between Beijing and Washington this week, market watchers attributed the moves to positioning after a brief bout of volatility last week.
“We had a lot of market volatility last week and the current move in the high-beta currencies is due to some unwinding of extreme long positions in the dollar,” said Morten Lund, a senior FX strategist at Nordea.
Latest futures data showed hedge funds have added to their massive long dollar positions.
Against a basket of its rivals <.DXY>, the dollar dipped 0.1% to 98.91 after posting its biggest single-day rise in a week in the previous session.
Markets will be keenly watching comments from U.S. Federal Reserve Chairman Jerome Powell later in the day after some weak U.S. data last week raised concerns the U.S. economy may be heading towards a protracted slowdown.
The euro <EUR=EBS> got a boost from German industrial output data which rose unexpectedly in August.
The single currency rose 0.1% to $1.09815 but remained within sight of a more than a two-year low of $1.08790 hit last week.
The Chinese yuan firmed in onshore and offshore trade as Chinese financial markets reopened after a week-long holiday.
The Australian and New Zealand dollars, whose fortunes are often linked with global trade, edged higher as some investors reduced bearish bets, though dealers warned this move could fade depending on the tone of the trade talks in Washington.
Deputy-level meetings between U.S. and Chinese trade negotiators began in Washington on Monday, with little immediate signs of progress.
(Reporting by Saikat Chatterjee, Editing by William Maclean)