May 5, 2020 / 8:12 AM / 22 days ago

FOREX-Dollar firms as China-U.S. tensions rise

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

LONDON, May 5 (Reuters) - The U.S. dollar edged higher for a second consecutive day on Tuesday as traders worried about rising tensions between the United States and China, while the Australian dollar gained thanks to a bounce in oil prices.

But the dollar’s gains were marginal as risk sentiment improved slightly on further easing of lockdown measures, raising hopes the global economy is likely to be close to or just past the worst of the sharp downturn.

“Investors have turned their gaze back to the easing of the ‘stay at home’ measures ... with the slowdown in both infected cases and deaths helping sentiment,” said Charalambos Pissouros, a senior market analyst at JFD Group.

Against a basket of its rivals, the dollar edged up 0.1% to 99.55, and was not far away from a near two-week high of 100.83 in late April.

The dollar strengthened after U.S. President Donald Trump stepped up verbal attacks on China ahead of a Nov. 3 presidential election, raising fears of a new trade war.

The Australian dollar inched up more than 64 cents to $0.6454 after the Reserve Bank of Australia left its targets for the cash rate and three-year government bond yields unchanged at 0.25%, but forecast the economy would suffer its largest ever contraction in the first half of the year.

Public holidays in Japan and China lightened trade; the yuan rose to 7.1195 per dollar in offshore trade, recovering from a six-week low of 7.1560 hit in the previous session, but well below the range it was in last month.

Other commodity currencies like the Norwegian crown also advanced as oil prices bounced.

U.S. crude rose 6.6% and Brent around 5% as production fell and countries around the globe including Italy, Finland and several U.S. states eased lockdown restrictions. O/R

Elsewhere, the euro slipped 0.1% to $1.0892, hit by a court challenge from German academics to the European Central Bank’s bond buying programme.

A ruling is due later on Tuesday and while an outright rejection of the German Bundesbank’s participation in the asset purchases appears unlikely, anything less than a clear-cut defeat of the challenge could hit the single currency. (Reporting by Saikat Chatterjee; Additional reporting by Tom Westbrook in SINGAPORE; Editing by Pravin Char)

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