FOREX-Dollar dips as virus recovery optimism holds

* Economic re-start hopes help riskier currencies higher
* Sino-U.S. tensions cap gains
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, May 26 (Reuters) - The dollar inched lower on
Tuesday as growing optimism about a global recovery from the
COVID-19 pandemic supported riskier currencies, though concerns
about Sino-U.S. tensions held further moves in check.
After a quiet start to the week due to holidays in Britain
and the United States, the greenback was a fraction softer
against most Asian currencies.
Against a basket of currencies =USD the dollar was roughly
where it ended last week, holding at 99.692. The Japanese yen
JPY= fetched 107.79 per dollar.
The Australian and New Zealand dollars rose about 0.3%, but
kept below last week's highs even as stock markets forged ahead.
MKTS/GLOB
"Markets are caught between two conflicting currents," said
Michael McCarthy, CMC Markets' chief strategist. "Rising
tensions between China and the U.S. are raising concerns, while
easing COVID-19 lockdown measures are fuelling growth optimism."
The Chinese yuan CNH= , a barometer of relations between
the world's two biggest economies, firmed a bit to 7.1427,
though it remains near a two-month low of 7.1465 hit on Friday.
CNY/
The Australian dollar AUD=D3 was steady at $0.6559, and
the kiwi NZD=D3 at $0.6112. AUD/
ANZ Bank upgraded its forecasts for the Antipodean
currencies, but still expects both to fall, with the Aussie
forecast at $0.60 and the kiwi at $0.55 in December.
"At current levels a global recovery is in the price, and we
believe it's a question of when, not if, depreciation resumes,"
ANZ analysts said in a note on Tuesday.
Trade, the handling of the pandemic and China's move to
impose laws on Hong Kong are all seen as potential catalysts for
a further deterioration in already testy U.S.-China relations.
The latest salvos came over the weekend, with White House
National Security Adviser Robert O'Brien warning of potential
sanctions if Hong Kong's autonomy was undermined, and China's
top diplomat Wang Yi criticising U.S. attacks as a "smear".
A third downgrade in Singapore's growth forecast also
provided a fresh reminder of the pandemic's devastating impact
on the global economy. The trade-exposed city-state expects
gross domestic product to contract between 4% and 7% this year.
Still, from Europe to Japan, restrictions on businesses and
movement are lifting and barring a second wave of infections,
there is plenty of hope for a swift return to growth.
Together with low interest rates, and talk of them heading
even lower, the calmer conditions had some investors on the
lookout for carry trades.
The British pound GBP=D3 rose 0.3% to $1.2215 and the euro
EUR= tacked on 0.2% to $1.0908. Both currencies lost between
4% and 5% on the Mexican peso and Brazilian real last week.
"We've got the perfect ground right now for Mexican peso or
Brazilian real outperformance," said Chris Weston, head of
research at Melbourne brokerage Pepperstone. "It's basically
choose your carry vehicle, or funding currency, and get paid."