* Dollar's August bounce retraces slightly; Congress eyed
* Euro, yen off overnight troughs
* Aussie edges ahead after no surprises from RBA
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Tom Westbrook
SINGAPORE, Aug 4 (Reuters) - A rebound in the dollar
faltered on Tuesday as political wrangling over a U.S. relief
plan and the gloomy economic outlook kept investors shy of the
currency.
After its worst month in a decade in July the greenback
started August on a firm note as some investors trimmed their
short positions, pushing the currency as high as $1.1695 per
euro on Monday, 1.8% above last week's two-year low.
However, that only carried it so far, and it settled back to
$1.1766 EUR=EBS in Asia on Tuesday, while the yen and other
majors also lifted from troughs. The Aussie AUD=D3 edged ahead
to $0.7134 after the central bank offered no surprises by
holding policy steady. Despite an encouraging slowdown in new virus cases and
better-than-expected manufacturing data, investors are reserving
judgment on whether a U.S. economy with 30 million people out of
work can really lead the world's recovery.
"We're still in a situation where the market wants to
believe the recovery is on track but is still worried about the
COVID situation," said Bank of Singapore FX analyst Moh Siong
Sim.
"The fiscal wrangling in the U.S. is the next key test for
risk sentiment, and if they manage to get a deal - which seems
likely - that could be supportive of risk sentiment."
Top Democrats in Congress and White House negotiators on
Monday said they had made headway in talks on the latest
coronavirus relief bill, though an expired $600-per-week
unemployment benefit remains a sticking point. It is not clear whether an agreement would be enough to
shift the market perception that the U.S. economic recovery
lagged those of Europe and Asia.
"The historically extended long positions in the euro is dry
tinder, but there is no spark to trigger a more significant
reversal just yet," said OCBC Bank FX strategist Terence Wu in
Singapore.
"We are still left with hazy signals about the potential
turn in broad dollar prospects."
MIXED BAG
A better-than-expected expansion in the Institute for Supply
Management's U.S. manufacturing index was a bright spot for the
dollar overnight. But it came with a warning as output remains far below
pre-virus levels and the employment index was below forecasts,
at a still contractionary 44.3.
"The recovery cannot accelerate with the virus still not
under control in large segments of the global economy," said
Deutsche Bank's chief international strategist Alan Ruskin.
"We expect much more sensitivity to the August data, now
that 'the easy part' of the bounce back from lockdowns is done."
The United States had a second straight week of slowing
infections last week, but a fourth week in a row of rising
deaths, a Reuters analysis found, as new hotspots emerge there
and around the globe.
Cases are on the march again in Europe while Australia's
second-biggest city of Melbourne announced a curfew and fresh
restrictions on movement to suppress an outbreak there.
"This recovery is ... likely to be both uneven and bumpy,"
the Reserve Bank of Australia said in its policy statement on
Tuesday, forecasting Melbourne's lockdown to push unemployment
to about 10% later in the year from 7.4% in June.
Elsewhere the yen JPY= was stable at 106.04 per dollar
while the pound GBP= hung on to most of July's gains on the
greenback at $1.3079. The New Zealand dollar NZD=D3 was flat
at $0.6612. AUD/
Elevated Sino-U.S. tension kept the yuan on the weaker side
of 7-per-dollar at 6.9806 in onshore trade CNY= . CNY/