FOREX-Dollar firm as 'second wave' virus fears drive safe-haven bid

* Dollar touches two-week high vs basket of currencies
* AUD slips on signs of fresh China tension
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, May 12 (Reuters) - The dollar hung on to gains on
Tuesday as growing fears about a second wave of coronavirus
infections denting a global recovery and fresh signs of trade
tensions made investors cautious.
U.S. Federal Reserve officials downplaying the likelihood of
negative interest rates gave a boost to the dollar's yield
attraction, while worries about new virus infections in China,
Germany and South Korea drove safe-haven demand, analysts said.
Governments' tentative steps toward bringing their countries
out of lockdown were also a source of uncertainty, due to the
medical and financial risks.
"It's a little bit of yield support (for the dollar) and a
general return of nerves," said Westpac FX analyst Sean Callow,
as April's surge in riskier currencies fades away.
"Our base case has been for a while now that the risk bounce
was overdone, we just don't think (recovery) is going to be a
straight line."
The Aussie dollar AUD=D3 slipped as far as 0.8% to a
one-week low of $0.6432 after China banned some Australian meat
imports, but pared losses as Australia's trade minister
downplayed the issue as a technicality. Other majors nursed losses, except the yen which firmed a
fraction following an almost 1% drop on Monday that had pushed
it to the bottom end of a range it has traded in for a month.
The euro EUR= dipped below $1.08 for the first time in
nearly a week, before recovering to $1.0802. The New Zealand
dollar NZD=D3 also pared early losses to steady at $0.6083.
The dollar slipped about 0.3% to 107.36 yen JPY= .
A ponderous plan for lifting lockdowns in Britain also kept
the pound GBP= under pressure at $1.2337.
Against a basket of currencies =USD the greenback touched
a two-week high in Asia, before falling back to flat at a
week-high 100.27.
Soft data from China, where factory prices and inflation
missed expectations, and a worrying re-emergence of COVID-19
cases following relaxation of restrictions on movement and
businesses made investors wary. The central Chinese city of Wuhan, where the coronavirus
first emerged late last year, reported its first cluster of
coronavirus infections since a lockdown of the city was lifted a
month ago. BEEF AND BARLEY
The dollar has closely tracked investors' risk aversion
through the coronavirus crisis. But rising longer-tenor yields
as Washington prepares to borrow some $3 trillion this quarter
have added some carry-trade attraction to the currency as well.
Investors are anticipating a speech on Wednesday from U.S.
Federal Reserve Chairman Jerome Powell, expecting him to rule
out or talk down the prospect of negative interest rates, which
the futures market has begun to price in for 2021. 0#FF:
U.S. President Donald Trump's refusal to re-open "Phase 1"
negotiations with China after the state-run Global Times floated
the idea on Monday stirred prospects of further trade tensions.
Australia's trade minister said that China's ban on some of
its meat exports was not due to Canberra leading a push for an
inquiry into the origins of the coronavirus, though the move was
a fresh reminder of trade vulnerabilities. China also plans hefty tariffs on Australian barley, grain
growers said on Sunday, though Australia's government has sought
to downplay links between the trade moves and diplomatic
tensions with its largest trading partner. "If it stays at beef and barley, then economically, it
shouldn't matter much for Australia," said Stephen Innes, chief
global market strategist at AxiCorp.
"The risk is, of course, that this broadens out to more
critical areas such as iron ore, coal, education, LNG,
etcetera."