By Kevin Buckland
TOKYO, Nov 30 (Reuters) - The safe-haven U.S. dollar eased from a one-week high on Wednesday amid increasing optimism for a loosening of China's COVID restrictions, although moves were muted ahead of a speech by Federal Reserve Chair Jerome Powell later in the day.
The risk-sensitive New Zealand and Aussie dollars rose, while the offshore Chinese yuan hovered near a one-week peak.
"The market is thinking that China taking a bit of a softer stance equals China reopening, and while I think that's a bit of a stretch, in that it's not going to happen overnight, that's seeing the dollar get sold," said Bart Wakabayashi, branch manager at State Street in Tokyo.
"But there's a back and forth between dollar selling and dollar strength, because earlier in the week, all we could talk about was hawkish Fedspeak," he added.
The U.S. dollar index, which measures the greenback against six rivals, eased 0.13% to 106.72 after reaching 106.9 in early Asian trading for the first time since Nov. 23.
The index has dipped to around 105.3 twice since the middle of the month, amid bets the Fed would pivot from aggressive rate hikes after inflation showed signs it may be close to a peak.
Traders currently lay 63.5% odds that the Fed will slow to a half-point pace of rate rises on Dec. 14, and a 36.5% chance for another 75 basis point hike.
New York Fed President John Williams said on Monday that the central bank needs to press forward with rate rises, and St. Louis Fed President James Bullard said there is still "a ways to go" for policy tightening.
"I think the underlying message is that the Fed is not happy with where inflation and employment are at the moment," State Street's Wakabayashi added. "Powell will continue to err on the side of hawkishness at this point in time."
The dollar slipped 0.07% to 138.60 yen, as the pair continued to consolidate following a bounce from a three-month low of 137.50 on Monday.
The euro ticked up 0.11% to $1.0339, lifting from a one-week low reached earlier on Wednesday at $1.0319.
German and Spanish consumer price figures came in weaker than expected on Tuesday, triggering a lowering of rate hike bets for the European Central Bank and shining a spotlight on Wednesday's euro zone inflation data.
Sterling was flat at $1.19535.
The New Zealand dollar strengthened 0.29% to $0.6218 while the Aussie adding 0.1% to $0.66935.
The Antipodean currencies, which often function as proxy trades on China's economic outlook, shook off downward pressure from worse-than-expected Chinese manufacturing surveys.
In Australia, lower than forecast inflation data also reduced the pressure for any aggressive tightening by the Reserve Bank next week.
The yuan weakened slightly to 7.1418 per greenback in offshore trading.
Chinese health officials said on Tuesday they will speed up COVID-19 vaccinations for the elderly, aiming to overcome a key stumbling block in efforts to ease unpopular "zero-COVID" curbs, which had sparked vigorous protests in recent days.
"Overall, it appears that China is readying to move from zero-Covid to living with COVID," Kim Mundy, a strategist at Commonwealth Bank of Australia, wrote in a client note.
"Expectations for an end to China's zero-covid policy in coming months, combined with more targeted restrictions in the meantime, can provide support to CNH, AUD and NZD."
(Reporting by Kevin Buckland; Editing by Lincoln Feast and Kim Coghill)