* Offshore yuan near highest level since July 2018
* Yuan's strength stems from China recovery, reflects soft
dollar
* Aussie tests Sept low after RBA signals Nov easing
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Hideyuki Sano
TOKYO, Oct 20 (Reuters) - The yuan held near a two-year high
against the dollar in offshore trade on Tuesday, on signs of
China's robust economic recovery while the Australian dollar
slipped to a three-week low as the central bank looks set to
enhance monetary easing.
Broader risk sentiment was curbed by caution ahead of a
Tuesday deadline to reach agreement on a U.S. coronavirus aid
package as well as the Nov. 3 U.S. presidential election.
China's offshore yuan rose as high as 6.6695 per dollar on
Monday, surpassing its 2019 peak and hitting its strongest level
since July 2018. It last stood flat at 6.6806 CNH= .
The yuan's gain came as data on Monday showing a recovery in
China's consumer sector helped boost not only the Chinese
currency but others, including the euro. "The U.S. will have to rely on easy monetary policy to
support the economy and that will continue to put pressure on
the dollar. The offshore yuan is the clearest manifestation of
that," said Kazushige Kaida, head of FX sales at State Street
Bank's Tokyo branch.
On the other hand, the Australian dollar dropped 0.3% to
$0.7045 AUD=D4 , hitting a three-week low of $0.7038 on
increasing expectations of monetary easing next month by the
country's central bank.
Minutes of the Reserve Bank of Australia's (RBA) last policy
meeting confirmed the Board had discussed cutting rates and
buying longer-dated debt as a means to support the economy and
restrain the currency. "The minutes give a green light to further monetary policy
easing by the RBA at its November Board meeting," said CBA
economist Belinda Allen.
Allen, and the market, expect the cash rate to be cut to
0.1% from the current 0.25% and the central bank to extend bond
buying out to the five- to 10-year sector of the yield curve.
The New Zealand dollar fell in sympathy to $0.6578 NZD=D4 ,
down 0.4% on the day.
Broader confidence was also dented by a fall in U.S. share
prices as investors grew cautious about prospects of a stimulus
deal in Washington.
U.S. House of Representatives Speaker Nancy Pelosi and
Treasury Secretary Steve Mnuchin "continued to narrow their
differences" in a telephone conversation on Monday, her
spokesman said. Pelosi hopes that by the end of Tuesday there will be
"clarity" on whether a coronavirus stimulus bill can be passed
before the Nov. 3 presidential election, he said.
"Although Pelosi has set a Tuesday deadline for a deal, it
does not seem like she has a clear conviction that there will be
an agreement," said Shinichiro Kadota, senior strategist at
Barclays.
"Markets probably still think a deal before the election is
unlikely."
In Asian trade, the euro held flat at $1.1767 EUR= , after
a 0.44% gain made on Monday.
Sterling also held on to small gains made the previous day
at $1.2941 GBP=D4 .
Britain's chief Brexit negotiator David Frost said there was
no basis to resume trade talks with the European Union unless
there was a fundamental change in Brussels' approach to
negotiations. However, investors still think British and European
negotiators might be able to salvage post-Brexit trade talks to
prevent disruptions that a no-deal finale to the five-year
Brexit drama would cause. Against the euro, the pound was little changed at 90.88
pence per euro EURGBP=D4 , slowly recovering after hitting a 5-
1/2-month low of 92.90 pence on Sept. 11.
The dollar traded little changed at 105.46 yen JPY= .
"The yen could have risen on the risk-off mood but since the
market is already long on the yen, unwinding of those positions
seems to offset (safe-haven) buying," said Minori Uchida, chief
currency analyst at MUFG Bank.
(Editing by Sam Holmes and Jacqueline Wong)