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FOREX-Dollar bounceback pauses, Aussie and Kiwi regain lost ground

Tue, 22nd Sep 2020 12:30

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
(Updates prices, adds comment)

By Elizabeth Howcroft

LONDON, Sept 22 (Reuters) - The tide of risk-aversion which
saw the dollar hit new six-week highs early on Tuesday ebbed as
the session wore on, as European equity markets rose, the
dollar's gains paused and riskier currencies recovered some
losses.

Stocks sold off on Monday and the currency market saw
"risk-off" moves, with the dollar index climbing to its highest
in six weeks.

The dollar continued its ascent in early London trading on
Tuesday and riskier currencies fell, as investors feared new
lockdown measures to combat a second wave of COVID-19 infections
would pose a threat to the global economic recovery.

The morning's moves eased as the session went on, and the
dollar was broadly flat on the day at 93.532 versus a basket of
currencies at 1102 GMT, still up 0.6% on the week.

"The dollar looks as if it's got a broad enough base for a
bit of a bounce, that this can last for a while," said Kit
Juckes, head of FX strategy at Societe Generale.

The UK will see further restrictions on activity, although
Prime Minister Boris Johnson is expected to stop short of
announcing a full national lockdown like that imposed in March.

In Spain, the army has been asked to help fight a
coronavirus surge in Madrid, while restrictions in other
European countries were announced last week, with Germany
describing the situation as "worrying".

"The terms 'second wave' and 'lockdown' have been with us
for a while, but so far the markets reacted only moderately
cautiously to the negative news flow," said You-Na Park-Heger,
FX analyst at Commerzbank.

"However, as the situation seems to be deteriorating,
particularly in Europe, the markets nonetheless seem to be
getting nervous at this stage," she said.

Park-Heger said that even though Commerzbank does not expect
more extensive lockdowns, the possibility may weigh on market
sentiment for some time.

"A rapid correction of yesterday's move is therefore
unlikely to be seen any time soon," she said.

Riskier currencies extended their losses against the dollar
in early trading and recovered as the session wore on.

The Australian dollar, which fell to a one-month low at 0735
GMT, was flat on the day at 0.7224 per dollar at 1104 GMT
.

The New Zealand dollar was up 0.1% at 0.6676, reversing
earlier losses.

The Reserve Bank of Australia said it is assessing policy
options including currency market intervention and negative
rates, which added to pressure on the Australian dollar in the
Asian session.

"Coupled with the Nov US Presidential elections, the outlook
for risk assets is likely to be tricky for coming weeks and
months," wrote ING strategists in a note to clients.

ING said that it did not expect the dollar to see
long-lasting gains, however, as dollar liquidity was not an
issue as it was in March, and the U.S. Federal Reserve would
step in if risk sentiment fell further.

"For DXY, we expect the 94.00 level to be strong resistance
this week," they said.

The euro was down 0.1% against the dollar at $1.17555
, while the dollar resumed its recent pattern of losing
out to the yen, with dollar-yen down 0.2% at 104.460.

The Swedish and Norwegian crowns also fell. The Norwegian
crown reached a two-month low of 9.3615 against the dollar at
0725 GMT and was at 9.318 at 1106 GMT, still down 0.3%
on the day.

Sweden's Riksbank kept its rate unchanged at 0%, as
expected, and said it is expected to remain there in the coming
years.

U.S. Fed Chair Jerome Powell will speak at a congressional
committee from 1430 GMT.
(Reporting by Elizabeth Howcroft, editing by Larry King and
Catherine Evans)

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