Dunne, voted as the Blues' Player of the Year for the last four seasons, has been offered a deal that would put him into the highest earning bracket at City.
After speaking to Dunne this week, Hughes is hoping that everything will be resolved very shortly, and he told MCFCTV.com:
"It's a little bit difficult because he's away at the moment, but I'm sure that when he's back this will be resolved very quickly.
"We have offered Richard a substantial deal, there may be more negotiations to be done but I am very hopeful that he will continue to be a Manchester City player."
The pair played alongside each other at Everton in 2000, so the Manager is well aware of the skipper's qualities.
"I played alongside him, and even though it's a while ago now I know his qualities very well. He's been outstanding at City, he's key to what we are trying to do here and if we can, we'll make sure we do everything we can to keep him."