* 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. 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 (NYSE:STT) 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. 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. 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 (LON:BARC).
"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. 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. 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)