* Risk-on sentiment pushes down dollar against riskier
currencies
* China says China-U.S. trade officials discussed
co-operation
* Talk of negative U.S. interest rates another disadvantage
* U.S. April payrolls seen falling a record 22 mln
By Hideyuki Sano
TOKYO, May 8 (Reuters) - The dollar slipped on Friday as
investors defied a broader sense of doom around upcoming U.S.
employment data and found reasons to buy riskier currencies with
more governments slowly reopening their economies for business.
The mood got a lift after China and the United States said
their top trade negotiators had held a phone call and agreed to
strengthen economic and public health cooperation. The talks come as tensions have flared up between Washington
and Beijing in recent days over the origins of the coronavirus.
"Broadly speaking, the market is looking to how the
economies will normalise and is being driven by news headlines.
No one still has a clear picture on how much growth we can
recover in 2020," said Kazushige Kaida, head of currencies at
State Street Bank.
The greenback 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 dollar's index against a basket of six other major
currencies slipped 0.2% to 99.673 =USD from Thursday's high of
100.40.
The euro edged up 0.1% to $1.0847 EUR= , bouncing back from
Thursday's near two-week low of $1.07665 though it was down
about 1.2% on the week.
The Australian dollar gained 0.6% to $0.6534 AUD=D4 ,
nearing a seven-week high of $0.6570 marked on April 30.
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. The dollar's retreat against riskier currencies reflected a
recovery in risk sentiment as global shares rallied, with Nasdaq
index now wiping out its losses this year. .N
On top of aggressive monetary easing around the world, hopes
of economic normalisation are supporting the mood as some
countries in Europe and parts of the United States ease
restrictions on economic activity.
Against the safe-haven yen, the dollar bounced back to
106.38 yen JPY= , above a seven-week low of 105.985 touched on
Wednesday.
NEGATIVE RATES
The greenback was also caught off guard as U.S. short-term
bond yields hit record low with markets starting to price in
negative U.S. interest rates for the first time. Among G3 currencies, only the dollar has positive interest
rates.
"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 is likely boost the recovery in the US and
pull in capital flows, supporting the dollar.
Federal Reserve officials have said that they do not see
negative rates as appropriate. Still the price action suggested
some investors see a much worse downturn that could force the
Fed to become more experimental with its crisis response.
Data on Thursday showed 3.169 million initial unemployment
claims for the week ended May 2, more than economists' forecast
of 3 million, and bringing total claims since late March to 33.5
million, or about one in every five workers. Unemployment data due later in the day is expected to show a
historic hit to the U.S. labour market.
Nonfarm payrolls are forecast to have plunged 22 million in
April, which would blow away the record dive of 800,000 seen
during the 2007-2009 recession. The unemployment rate is seen jumping to 16% in April, which
would shatter the post-World War Two record of 10.8% touched in
November 1982.
Some traders sold dollars to take profits ahead of the data.
"Everyone knows it is going to be terrible and people are
focusing on the pace of a rebound from there," said Ayako Sera,
market strategist at Sumitomo Mitsui Trust Bank.
"But because this is an unprecedented pattern, you cannot
find any historical example, and where there is no example, even
artificial intelligence cannot find an answer."