FOREX-Dollar firm on manufacturing data, A$ gains after RBA

* U.S. manufacturing data jumps unexpectedly
* A$ rises after RBA keeps rates on hold
* Iowa caucus, Brexit talks, coronavirus all in focus
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, Feb 4 (Reuters) - The dollar held firm on Tuesday
after a key U.S. manufacturing survey showed a surprise
recovery, while the Australian dollar rose after the central
bank left rates steady and retained the outlook despite
bushfires at home and a virus epidemic in China.
The widening coronavirus outbreak in China kept markets on
edge, however, while traders also eyed the U.S. state of Iowa,
where Democrats began months-long process to choose a challenger
to President Donald Trump. The dollar index =USD held firm at 97.832, having risen
0.44% on Monday, the biggest gain so far this year.
That boost came after the Institute for Supply Management
(ISM) reported that U.S. factory activity unexpectedly rebounded
in January after contracting for five straight months amid a
surge in new orders. Against the yen, the dollar traded at 108.70 yen JPY= ,
after a gain of 0.3% on Monday, the biggest gain in a downtrend
that started in mid-January.
The euro stood at $1.1057 EUR= , having slipped 0.3% on
Monday.
The Australian dollar rose 0.35% to $0.6714 AUD=D4 ,
pulling away from a 10-1/2-year low of $0.6670 touched last
October, after the Reserve Bank of Australia (RBA) kept its main
cash rate at a record low of 0.75%.
It also retained forecasts for economic growth for this year
and next at 2.75% and 3% respectively, despite the devastating
bushfires at home and the threat to growth posed by China's
rapidly spreading coronavirus.
Still, interest rate futures 0#YIB: are fully pricing in
one rate cut by May, with the coronavirus adding to the
headwinds to the Chinese economy - Australia's major export
market.
The death toll in China rose to 425 as of the end of Monday,
with infections now at more than 20,000. The RBA said it was too early to determine how long-lasting
the impact from the virus will be.
"The question is how long it will take to contain the
epidemic. While some people are selling risk assets, there are
also lots of people who are looking for a chance for
bargain-hunting," said Ayako Sera, market economist at Sumitomo
Mitsui Trust Bank.
"If we start to see a decline in the number of new cases,
then we could see an end. But at the moment, it is hard to say
when that will happen."
The offshore yuan gained 0.1% to 7.0022 yuan per dollar
CNH= , in line with rebounds in Chinese shares and holding
above its one-month low of 7.0230 per dollar hit in European
trade on Monday.
"On the whole, the epidemic is not necessarily negative for
the yuan's demand-supply balance," said Ei Kaku, currency
strategist at Nomura.
"A bulk of China's service account deficit comes from
Chinese travel spending overseas, and that looks set to shrink
for now. We also saw inflows of funds to Chinese stocks
yesterday, so no sign yet of capital flight either."
Elsewhere, sterling was soft at $1.2999 GBP=D4 , having
lost 1.54% on Monday on renewed worries about Britain's
relations with the European Union.
Prime Minister Boris Johnson set out tough terms for Brexit
talks with the European Union, rekindling fears Britain would
reach the end of an 11-month transition period without agreeing
a trade deal. Traders are also casting an eye on the U.S. state of Iowa,
where Democrats are kicking off a process to choose a challenger
to President Trump. Market players say a victory by a progressive candidate such
Senator Bernie Sanders and Elizabeth Warren could hurt shares
and lift safe-haven currencies as some of their policies are
thought to be not in best interests of Wall Street.