FOREX-Risk currencies take breather after rally, virus resurgence lifts dollar

* Aussie dollar down 0.5% as Melbourne enters lockdown
* Dollar index climbs 0.2%
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Ritvik Carvalho
LONDON, July 7 (Reuters) - Risk currencies such as the
Australian dollar took a breather from recent gains on Tuesday
with investors hitting pause on an equity market rally, as new
coronavirus flare-ups and regional lockdowns in some countries
curbed buying and lifted the dollar.
Riskier currencies such as the commodity-driven Aussie,
Norwegian crown, the New Zealand dollar and the Swedish crown
have rallied strongly since April alongside increased risk
appetite in global markets.
But with a blazing run up in Chinese equities cooling on
Tuesday, surging coronavirus infections in places that are
attempting a reopening, and regional lockdowns still being
introduced, investors appeared to take their foot off the gas.
Lockdown measures were reimposed in Australia's second
biggest city on Tuesday, confining Melbourne residents to their
homes unless undertaking essential business for six weeks, as
officials scramble to contain a coronavirus outbreak.
The Australian dollar sank 0.5% to its U.S. counterpart
after the announcement, last trading at $0.6940. AUD=D3

It had no reaction to the country's central bank leaving
rates unchanged.
The dollar index in the meanwhile, rose 0.2% to 96.972.
=USD It gained 0.2% against the yen, to trade at 107.595
JPY= .
The Chinese yuan CNH= picked up where it left off after
soaring with runaway Chinese equities on Monday, but pulled back
from an offshore top of 6.9965 per dollar as caution crept in.
Florida's greater Miami area became the latest hot spot to
roll back its reopening as virus cases surged nationwide by the
tens of thousands and the U.S. death toll topped 130,000.
"After yesterday's strong risk rally - which also drove
risky currencies higher - the reality of regional lockdowns in
places like the US, UK, Spain and now Australia are a gentle
reminder that the threat of a second coronavirus wave is one
that investors should not be quick to price out," said Viraj
Patel, global FX and macro strategist at Arkera.
Investors are watching nervously as infections surge in the
United States and India, but are so far taking the view that
more massive lockdowns are unlikely.
The daily case count makes sombre reading, but deaths have
not jumped, said Chris Weston, head of research at Melbourne
brokerage Pepperstone, who is more closely watching the bond
market where stubbornly low yields are driving cash elsewhere.
The yield on benchmark 10-year U.S. Treasuries US10YT=RR
has been parked at roughly 0.7% for a month, well below an early
June top of 0.9590% and more than 100 basis points below where
they began the year. US/
"If we were to suddenly see signs of a sell-off in the
Treasury market, that could have big implications for where
global capital sits. Until that point, it's onwards and
upwards," Weston said. "Just do what's working and carry on
buying."
On Tuesday, the kiwi last sat steady at $0.6554 having, like
the Aussie, pulled back from testing the top of a range it has
kept for about a month. AUD/
The euro EUR= sat just below a two-week high touched on
Monday at $1.1311 and the pound GBP= held steady at $1.2505.
The yen JPY= was flat at 107.36 per dollar.
A key measure of the market's long-term inflation
expectations in the euro area EUIL5YF5Y=R has risen from
record lows hit in March and is close to its highest levels in
around 4 months.
"One implication of higher inflation expectations is a
further push higher in euro/dollar. The pair made it back above
$1.13 yesterday and we think it has further to go in the short
term," said strategists at Danske Bank in a note to clients,
adding that they saw the euro reaching $1.15 in 3 months.