June 1, 2020 / 5:41 AM / a month ago

FOREX-Aussie dlr surges as investors focus on recovery from pandemic

* AUD hits highest since Feb, commodity currencies gain

* U.S. street clashes add caution but focus on virus recovery

* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E

By Tom Westbrook

SINGAPORE, June 1 (Reuters) - Riskier currencies rose against the dollar on Monday as investors looked to positive signs from China’s post-coronavirus economic recovery and wagered on an easing in Sino-U.S. tensions.

The trade-sensitive Australian dollar surged 1% to a three-month high of $0.6742 to lead broader gains that put the dollar close to an 11-week low against a basket of currencies.

U.S. President Donald Trump made no move to impose new tariffs on China during a news conference on Friday where he outlined his response to Beijing’s tightening grip over Hong Kong.

“That removed the near-term risk of any intensification of the U.S.-China trade war,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

Moreover, investors were encouraged by the Caixin/Markit Purchasing Managers Index showing marginal but unexpected improvement in Chinese factory activity last month.

The New Zealand dollar rose about half a percent, along with the pound and Canadian dollar. Against a basket of currencies the dollar fell 0.2% to 98.022, close to an 11-week low of 97.944 touched last week.

The market mood was notable given major U.S. cities were bracing for another night of violence, as demonstrations against police brutality turned into a wave of outrage.

Analysts said the unrest was concerning, and perhaps a pointer to a close-run Presidential election in November, but was unlikely to shift short-term optimism about the U.S. economy.

“It’s tough to be a bear at the moment and the path of least resistance for risk remains to the upside in my opinion,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

The euro rose 0.2% to $1.1135, just below a two-month high of $1.1145, as investors drew confidence from the European Union’s plans for a coronavirus recovery fund.

The pound hit a three-week high of $1.2414 as Britain moves out of lockdown. The Chinese yuan was 0.2% stronger at 7.1196, catching up with Friday’s relief rally in offshore trade on hopes for easing Sino-U.S. tensions.

AUSSIE BOUNDS AHEAD

The Australian dollar was the standout gainer, though, hitting milestone highs on crosses as well as the dollar - climbing to a three-month high against the yen and a 10-month high on the loonie.

Its rise - it is up 22% from March lows and gained slowly but steadily through May as the country brought the coronavirus under control - may serve as a guide for currency traders as other economies begin to emerge from lockdown.

“What will drive price action on FX in general will be how countries navigate exit from lockdown and how they return to normality,” said Shafali Sachdev, head of FX for Asia at BNP Paribas Wealth Management in Singapore.

“The obvious example is something like the Australian dollar,” she said, pointing to gains since Reserve Bank of Australia Governor Philip Lowe said last week that the national economic downturn is likely less severe than first thought

“That is a good template for how we think the market will differentiate currencies.”

The advance was also underpinned by the soaring price of its top export - iron ore - which hit a record high on Monday.

“We’re pretty optimistic about the Aussie this week,” said Commonwealth Bank of Australia FX analyst Joe Capurso.

“Market participants believe that the worst of the health and financial and economic crises are now behind us ... and if we’re past the worst of it, then commodity currencies tend to do well and the U.S. dollar tends to do poorly,” he said. (Reporting by Tom Westbrook; Editing by Shri Navaratnam and Richard Pullin)

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