A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

By Kevin Buckland

TOKYO (Reuters) -The U.S. dollar dropped against a basket of peers on Wednesday after comments from Federal Reserve Chair Jerome Powell bolstered bets on a series of rate cuts in coming months.

The yen and Australian dollar were standout performers as each continued to recover from steep drops versus the greenback last week.

Some analysts also pointed to a tailwind from Beijing's decision to set the official yuan fixing on the stronger side of the closely watched 7.1 per dollar line for the first time since last November.

The risk-sensitive Aussie gained despite a simmering tariff spat between Beijing and Washington. The yen rallied even as uncertainty deepened over who will become Japan's next premier, with local media reporting that a parliamentary vote mooted for next Tuesday may be delayed amid political wrangling.

The dollar index, which measures the U.S. currency against six major peers, fell 0.2% to 98.844 as of 0536 GMT, extending a 0.2% decline from the prior session.

In a speech on Tuesday, Powell left the door open to rate cuts by saying the U.S. labour market remained mired in low-hiring, low-firing doldrums. He said the absence of official economic data due to the government shutdown has not prevented policymakers from being able to assess the economic outlook, at least for now.

Markets are currently priced for a quarter-point cut at the October 28-29 Fed gathering and another at the following meeting in December, followed by three more cuts next year, according to LSEG data.

"At this point, the market is pretty much trading 'Goldilocks'," said DBS analysts, with risk assets supported by a strong economy along with easy monetary conditions.

"Trade tensions, the government shutdown and inflation worries ... are all being set aside for now."

U.S. Trade Representative Jamieson Greer helped to calm some nerves on Tuesday when he told CNBC that there was still a plan for President Donald Trump to meet with Chinese leader Xi Jinping.

The dollar slid 0.4% to 151.23 yen, and earlier dipped to 151.005 yen. It fell 0.2% to 7.1284 yuan in offshore trading.

The Aussie climbed 0.4% to $0.6514, after falling 0.5% a day earlier, when it touched the lowest since August 22 at $0.64405.

However, the New Zealand dollar edged up only 0.1% to $0.5718, after dipping to a six-month low of $0.56839 on Tuesday. Reserve Bank of New Zealand Chief Economist Paul Conway told Bloomberg TV on Wednesday that policymakers were open to further rate cuts if necessary, following a jumbo reduction last week.

The euro added 0.1% to $1.1621 after gaining 0.3% in the previous session, supported by the French government's proposal to suspend landmark pension reforms.

Sterling gained 0.3% to $1.3355, bouncing back from declines on Tuesday, when official data showed a cooling in wage growth.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam and Jamie Freed)