FOREX-Dollar near 3-week peak as global stimulus talk lifts yields

* Dollar buoyant with U.S. yields bouncing from 3-year lows
* Easing risk aversion weighs on yen, Swiss franc
* China sets new lending reference rate touch lower, yuan
dips
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, Aug 20 (Reuters) - The dollar hovered near a
three-week high on Tuesday, as expectations policymakers around
the world would unleash fresh stimulus drove an improvement in
appetite for riskier assets and lifted U.S. government bond
yields.
Yields on benchmark U.S. Treasuries pulled away from
three-year lows, helped in part by the prospect of Germany
ditching its balanced budget rule to boost spending and on more
economic support measures by China.
China's yuan CNY= was down 0.2% at 7.0661 per dollar in
onshore trade against the broadly firmer greenback.
The yuan was also modestly pressured after the People's Bank
of China (PBOC) set its new lending rate slightly lower. It was
the first publication of the benchmark since the PBOC announced
interest rate reforms over the weekend designed to lower
corporate borrowing costs. "The dollar is higher across the board, tracking the rebound
in yields. The prospect of Germany embarking on stimulus was the
turning point and the dollar has regained momentum since," said
Yukio Ishizuki, senior currency strategist at Daiwa Securities.
The greenback traded little changed at 106.580 yen JPY=
following three straight sessions of gains, having moved away
from a seven-month low near 105.000 reached last week.
Against the Swiss franc, a currency sought in times of
market turmoil and political tensions along with the yen, the
dollar held near a two-week high of 0.9820 franc CHF= scaled
overnight.
The euro was a shade higher at $1.1086, but it still held
close to a two-week trough of $1.1066 set on Friday on
lingering concerns over political developments in Italy.
Italy's opposition Democratic Party has had good, initial
contacts with the ruling 5-Star Movement over the possibility of
forging a coalition, a PD source with knowledge of the talks
said on Monday.
The 5-Star's current coalition partner, the far-right
League, has said it will present a no-confidence motion against
Prime Minister Giuseppe Conte in an attempt to trigger a snap
election and cash in on its surging popularity in the polls.
"The political situation in Italy remains unstable. In
addition, expectations of Germany embarking on fiscal stimulus
may in turn also heighten Italian fiscal concerns," said
Masafumi Yamamoto, chief forex strategist at Mizuho Securities.
The Australian dollar AUD=D4 edged up 0.15% to $0.6776
after minutes of the Reserve Bank of Australia's (RBA) August
meeting suggested the central bank wasn't in a hurry to cut
rates again. While RBA is seen leaving the door open for further
easing, analysts reckon the prospect of an immediate rate cut
was limited. Market focus will shift to the annual symposium of global
central bankers starting on Friday at Jackson Hole, Wyoming.
Particular attention will centre on Fed Chairman Jerome
Powell's comments on monetary policy at a time when investors
widely expect the Fed to cut rates again at its next meeting in
September.
"A series of further rate cuts by the Fed has already been
priced into the dollar. So the currency could gain a fresh boost
if Powell does not sound as dovish as expected and clouds rate
cut prospects," Ishizuki at Daiwa Securities said.