The Australian Dollar posted the strongest gains against the US Dollar on Friday, buoyed by indications of a potential easing in US-China trade tensions, while the Euro also saw a slight uptick.

The risk-sensitive Australian and New Zealand Dollars rose alongside a continued rally in Asian equities, following Wall Street’s lead. Meanwhile, China’s offshore Yuan climbed to its highest level in nearly a month.

Despite recent losses, the greenback remained on course for a third consecutive weekly gain. Along with US Treasuries and equities, the Dollar rebounded from sharp declines last month, which had been triggered by concerns over a potential recession fueled by President Donald Trump's unpredictable tariff policies that shook investor confidence in US assets, Reuters reports.

“The Dollar was hit so badly in the immediate aftermath of the tariffs, so now in the broad picture there's a normalisation in the market,” according to Alvin Tan, an independent currency analyst based in Singapore.

“The market is keeping one eye on the economic situation, but the other eye is looking for positive developments in China,” he added.

China's Commerce Ministry stated on Friday that Beijing is “evaluating” a proposal from Washington to hold talks regarding President Trump's tariff measures.

The Australian Dollar climbed 0.5% to $0.6412, while New Zealand’s kiwi rose 0.4% to $0.5932.

These currencies, often seen as liquid stand-ins for the tightly-controlled Yuan due to the Antipodean countries’ strong trade links with China, gained as the offshore Yuan strengthened to 7.2519 per US Dollar, its highest level since 4^th April. Mainland Chinese markets remained closed for an extended holiday.

US stocks advanced on Thursday, supported by strong tech earnings and a manufacturing report that, while showing continued contraction, came in slightly above expectations.

The Dollar index slipped 0.2% but remained on track for a 0.3% weekly gain amid a holiday-shortened week of light trading.

Furthermore, USD traded at 145.17 Yen after briefly hitting 145.91, its highest level since 10^th April. The Yen weakened on Thursday following the Bank of Japan’s decision to keep interest rates unchanged and cut its growth forecasts, citing the impact of US tariffs. The move signalled a likely pause in further rate hikes as the central bank awaits clearer insight into the economic consequences of the trade measures.

Elsewhere, the Euro inched up 0.2% to $1.1317, recovering slightly from near a three-week low.

Traders are now turning their focus to the upcoming US nonfarm payrolls report for clues on when the Federal Reserve might resume interest rate cuts. Wall Street economists are projecting 130,000 new jobs were added last month, a slowdown from the 228,000 reported in March.

“Our view is that the FOMC needs time and more data to assess the impact of tariffs on inflation,” said ANZ analysts.

“As long as the labour market holds up, the FOMC will focus on inflation.”