* Greenback set for 0.6% weekly gain this week
* Aussie dollar, New Zealand dollar not doing well in May
* Sterling falls, reflecting Brexit transition worries
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Adds latest news on Norway)
By Olga Cotaga
LONDON, May 15 (Reuters) - The dollar was set for a small weekly gain on Friday and the Australian dollar for a more than 1% weekly drop as the threat of a second wave of coronavirus infections rattled investors.
Total cases in Germany increased by 913 to 173,152 on Thursday and the death toll rose by 101 to 7,824 after the country eased a nationwide lockdown.
New infections were recorded in other countries which have eased restrictions, denting earlier investor optimism that economies could get back to close to normal soon.
As hopes faded for a quick global recovery from the pandemic, traders unloaded the trade-sensitive Aussie and moved into safer assets such as the dollar.
“The risk is clear that the opening of economies takes longer to materialise vs what markets are discounting,” said Carl Hammer, head of macro and FICC research at SEB.
The euro was last neutral versus the dollar at $1.0799 . The common currency held its ground after German economic output contracted by 2.2% in the first quarter, as market participants were expecting.
Germany slid into recession after suffering its steepest quarterly contraction since the 2009 financial crisis as shops and factories were shut down in mid-March, preliminary data showed on Friday.
Moreover, the euro zone economy experienced its deepest contraction on record in the first three months of the year against the previous quarter.
“Data published since the first estimate has been generally weaker than expected and we see a risk of the first estimates being revised down for several countries,” SEB’s Hammer said.
Kit Juckes, macro strategist at Societe Generale, said that euro/dollar “is too weak already to fall fast”. The common currency had fallen to $1.0636 in March during the coronavirus- induced market rout and was now trading not far from that level.
The dollar was up 0.1% against a basket of currencies at 100.43, although set for a 0.6% gain for the week on rising Sino-U.S. tensions.
U.S. President Donald Trump signalled a further deterioration of his relationship with China over the coronavirus outbreak, saying he had no interest in speaking to President Xi Jinping right now and going so far as to suggest he could even cut ties with the world’s second-largest economy.
The Australian dollar and the New Zealand dollar both fell 0.6%, to 0.6428 and 0.5956 respectively. The Aussie dollar was on course for a 1.4% decline since Monday.
The antipodean pair, like other majors, have struggled for traction in May as investors and authorities weigh optimism about easing containment measures against the risk of more infections and the sheer scale of economic damage already done.
The yen was up 0.2% at 106.99 per dollar, but has been grinding lower this week as U.S. Federal Reserve officials talked down the prospect of negative rates, also buoying the dollar.
Elsewhere, the British pound remained under pressure, falling 0.6% to $1.2155, its lowest since March 27, after the European Union’s Brexit negotiator Michel Barnier said on Friday that the third round of talks with Britain on a new partnership was “disappointing”.
The Swedish crown fell on Friday both against the dollar and the euro, but the SEB estimated that on a trade-weighted basis, the currency was now at a stronger level then before the COVID-19 crisis started. The crown was last down 0.8% at 9.8850 against the dollar and at 10.67320 against the euro .
The Norwegian crown fell 1% to 11.0760 against the euro after Norway said will likely maintain current travel restrictions to and from the Nordic country until Aug. 20.
Norway’s Finance Minister Jan Tore Sanner said on Friday that Norway’s current level of public spending to shield the economy from COVID-19 was not sustainable over time.
Reporting by Olga Cotaga Editing by Larry King, Mark Heinrich, Nick Macfie and Giles Elgood