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FOREX-Aussie jumps as RBA holds rates steady; dollar drifts lower

Daniel Leussink

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

TOKYO, May 7 (Reuters) - The Australian dollar sharply rose on Tuesday after the country's central bank held rates at a record low, dashing speculation it may ease policy following a below-par reading of inflation.

The Aussie was last up about 0.7 percent at $0.7035 after the Reserve Bank of Australia (RBA) held its cash rate at 1.50 percent. Ahead of the policy decision, a slim majority of economists polled by Reuters had expected the central bank to keep rates steady, even as calls for an easing grew louder after disappointingly weak first-quarter inflation.

While the RBA kept policy unchanged, it opened the door wider for future cuts if the jobs market failed to push unemployment lower as retailers suffered their worst quarter in seven years.

Against the yen, the Aussie was last up about 0.5 percent at 77.82 yen.

Elsewhere in currency markets, the dollar kept largely to familiar ranges against major peers, even as comments from top U.S. trade officials that China had moved away from trade-related commitments weighed on U.S. bond yields and stock futures.

The dollar index against a basket of six rivals was last down 0.1 percent at 97.409, having ended the previous session nearly flat.

"From China's perspective, a break up in negotiations isn't really favourable for the domestic economy. I think they want to get a deal one way or the other," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

While there had been talk that Washington and Beijing might reach a trade deal this week, it is likely the negotiations will take a bit more time, he added.

Late on Monday, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin said China had moved away from commitments made over the course of trade negotiations.

Lighthizer said his office would probably put out a notice on Tuesday about a proposed increase in tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent.

Futures for the S&P 500 fell following the remarks. U.S. 10-year Treasury bond yields hit their lowest since May 1.

The dollar dipped slightly against the euro and the pound on Tuesday, though its moves against those currencies were much less pronounced than the Aussie's moves.

The euro last changed hands at $1.1210, up 0.1 percent on the day. Sterling rose about 0.2 percent to $1.3122 .

Against the yen, the dollar was down a tenth of a percent at 110.615 yen. It had brushed a five-week low of 110.285 yen per dollar during the previous session.

The Japanese currency tends to benefit during periods of geopolitical or financial stress as Japan is the world's biggest creditor nation.

(Editing by Sam Holmes and Jacqueline Wong)