The dollar dipped on Wednesday as Canada signalled it was ready to make a concession to the United States to resolve their talks over reworking the North American Free Trade Agreement (NAFTA), though lingering anxiety over US-China trade tensions weighed.

China will ask the World Trade Organization (WTO) on Tuesday for permission to impose sanctions on the United States in retaliation for Washington's non-compliance with a ruling in a dispute over US dumping duties.

The dollar index, which measures the greenback against six major peers, edged down 0.1 per cent at 95.133 in early trading. The dollar traded lower after two Canadian sources with direct knowledge of Ottawa's negotiating strategy said overnight Ottawa was ready to offer the United States limited access to the Canadian dairy market as a concession in negotiations to remake NAFTA.

Canada's protected dairy industry is a sticking point in NAFTA talks between the two countries. Canadian Foreign Minister Chrystia Freeland returned to Washington on Tuesday for talks aimed at rescuing NAFTA ahead of a looming Oct. 1 deadline.

A positive run on Wall Street also boosted the greenback, with the S&P 500 index closing nearly 0.4 per cent higher overnight. Still, anxiety over the trade dispute between China and the United States - the world's top economies - kept many investors on edge.

China's offshore yuan traded 0.1 per cent weaker at 6.8830 per dollar after slipping to a 2-1/2 week low of 6.8870 during the previous session. The Australian dollar, seen as a proxy for global growth due to the nation's significant trade exposure to China, shed 0.3 per cent to $0.7098.

The Aussie traded near a 2-1/2-year low of $0.7085 hit on Tuesday amid concerns Australia's exporters could suffer from any damage to the Chinese economy from a trade war. An index for emerging market currencies was pinned near a 16-month low reached during the previous trading session.

“You can't deny that emerging markets have fallen and that has weighed on sentiment, and that has probably pushed a lot of flows to the US and the dollar,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank. “All of this emerging market turmoil on top of all of this trade uncertainty has really driven participants into the dollar and again, to some extent, the yen,” he said.

The euro was down 0.1 per cent at $1.1595, while the pound also shed 0.1 per cent to $1.3017, coming off a one-month high of $1.3087 reached on Monday as a rise in optimism over prospects for a Brexit trade deal with the European Union faded. Against the Japanese yen, the dollar fell 0.14 per cent to 111.49 yen.

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