Reuters. Trader shows U.S. dollar notes at a currency exchange stand in Peshawar

By Stanley White

TOKYO (Reuters) – The Dollar was locked in tight ranges against most currencies Tuesday as renewed concerns about diplomatic tensions between the U.S. and China and rising coronavirus cases dampened risk appetite.

The EUR held its gains against the greenback and the Pound as investors awaited German investor sentiment data to help gauge the pace of Europe’s recovery from the health crisis.

Currency trading weakened as the recent resurgence of new coronavirus infections led some regions to impose new restrictions on trading activity.

Markets now face an additional threat of retaliation between Washington and Beijing over access to U.S. financial markets, civil liberties in Hong Kong and territorial claims in the South China Sea.

“Attention has shifted to the question of whether or not the next round of coronavirus lock-ups will be large enough to harm economic growth,” said Junichi Ishikawa, Senior Foreign Exchange Strategist at IG Securities .

“The Hong Kong problem could potentially lead to further trade friction. Negative developments on either front could lead to a decline in equities and safe-haven flows to the dollar and the yen.”

The Dollar settled at 107.35 Yen Tuesday in Asia after gaining 0.4% in the previous session.

The Dollar traded at 0.9419 Swiss Francs after three consecutive sessions of narrow gains.

The euro () was quoted at $1.1346, below the one-month high reached on Monday. The common currency traded at 90.36 pence (), maintaining a 0.9% rise from the previous session.

The United States and China are waging diplomatic battles on several fronts that could disrupt financial markets.

The administration of U.S. President Donald Trump plans to soon abandon a 2013 agreement between U.S. and Chinese auditing authorities, a senior State Department official told Reuters.

This decision could foreshadow a broader crackdown on Chinese companies listed in the United States that are under fire for circumventing US disclosure rules.

In addition, the U.S. hardened its stance against China’s claims in the South China Sea and is taking steps to end Hong Kong’s special legal status in protest over the Beijing Security Law for the former British colony.

The opening of the Yuan’s land-based trade will be closely examined Tuesday to see if the Chinese currency can continue its recent rally.

However, traders are likely to avoid large positions ahead of this week’s release of data on Chinese Gross Domestic Product, Retail Sales, Industrial Production and Exports.

Demand for riskier assets is likely to take a hit after California, the most populous state in the US, imposed new restrictions on businesses as coronavirus cases and hospitalizations soared.

Elsewhere in the world, the Australian dollar changed little, at $0.6935. Sentiment for the Australian dollar took a hit as some Australian states also re-imposed restrictions on coronaviruses.

The New Zealand dollar declined slightly to $0.6530.

Antipodean currencies are considered risk barometers because of their close links with commodities and the Chinese economy.

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2020-07-13