By Swati Pandey
SYDNEY, Dec 30 (Reuters) - The dollar was on the defensive on Monday in light year-end trading after suffering a setback the previous session, as hopes of a U.S.-China trade deal lifted investors' risk appetite, sapping safe-haven demand for the greenback.
The dollar index .DXY was stable at 96.942 against six major currencies after sliding 0.6% on Friday for its biggest single day percentage drop since June.
With Friday's loss, the index's gains for the year have shrunk to under 1%, putting it on track for the smallest annual change in six years.
Against the Japanese yen the dollar was treading water at 109.41, on track to end the year where it started in January. JPY=
The big gainers in recent weeks have been the risk-sensitive and commodity-linked currencies of Australia and New Zealand. AUD=D3 NZD=D3
The Aussie and the kiwi scaled five month peaks on Monday to $0.6990 and $0.6717 respectively, boosted by higher commodity prices and expectations the United States and China would sign a trade deal soon.
Last week, Chinese authorities said Beijing was in close contact with Washington about an initial trade agreement. Prior to those comments, U.S. President Donald Trump had talked up a signing ceremony for the recently struck Phase 1 trade deal.
But despite recent rallies, the annual performances of the antipodean currencies are still dreary with the Aussie down 1% so far this year and the kiwi off a shade.
"What's really noticeable is the narrow range of currencies during the year," said Marshall Gittler, Cyprus-based chief strategist at ACLS Global, pointing to "economic and monetary policy convergence."
"I expect less of both in 2020, for two reasons," he said, noting the expected end of the Sino-U.S. trade war which should lead to broader economic recovery across the world.
The second reason, Gittler said, was that inflation seemed to have bottomed.
"As (inflation) accelerates, countries are less likely to cut rates and maybe, possibly, conceivably some countries could start thinking about hiking rates, which would encourage monetary policy divergence."
Elsewhere, the euro EUR= rose for a sixth straight session on Monday to $1.1186.
Bleak European economic data had prompted hedge funds to bet on a weaker euro during 2019, but some strength in recent Eurozone data along with weakness in other currencies have lifted the euro.
The common currency has jumped 2.6% in this quarter but that was still not enough to wipe out this year's losses.
Sterling GBP= was higher after European Commission President Ursula von der Leyen said the European Union may need to extend the deadline for talks about a new trade relationship with Britain.
Even with the recent UK general election smoothing the path for Britain's exit from the European Union, Britain's ability to strike a new trading deal between the EU in a relatively short span of time remains a concern for some investors.
The pound was last up 0.15% for its fifth straight session of gains at $1.3096.
Later in the day, investors will stay tuned for the Chicago Purchasing Management Index, also known as the Chicago Business Barometer for clues about the health of the U.S. economy.