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FOREX-Dollar holds small gains as markets buffeted by COVID-19 woes, election uncertainty

Credit: REUTERS/ANTARA FOTO

The dollar clung to small gains on Tuesday as the greenback's safe-haven appeal was burnished by worries about a second wave of COVID-19, which drove the steepest stock market selloff in a month and underpinned a bond rally.

By Tom Westbrook

SINGAPORE, Oct 27 (Reuters) - The dollar clung to small gains on Tuesday as the greenback's safe-haven appeal was burnished by worries about a second wave of COVID-19, which drove the steepest stock market selloff in a month and underpinned a bond rally.

The United States, Russia and France all hit new daily records for coronavirus infections and overnight the S&P 500 index .SPX fell 1.9% and Germany's DAX .GDAXI dropped 3.7%.

Moves in the currency market were more muted, though the dollar index =USD lifted about 0.3% overnight and held there early in Asia trade while regional equities fell. MKTS/GLOB

The largest gains for the greenback on Monday came against the EUR=, up 0.4%, which was hit by a drop in German business confidence, and a 0.7% rise on the Canadian dollar CAD= as oil prices slumped. O/R

The yuan CNH= nursed a 0.5% loss as Sino-U.S. tensions flared over arms sales to Taiwan.

"The dollar is broadly stronger, but not massively," said National Australia Bank senior FX strategist Rodrigo Catril.

Structural forces, like low real yields, have held back further gains, he added, and so has a wait-and-see approach to the U.S. election.

"I think many would probably remember the bad experiences we had going in to the Trump-Clinton election (in 2016)," said Catril.

"If you had a position on, you would have been whipsawed big time. I think the strategy this time is to travel light, and to choose the opportunity on the day rather than take on a very, very strong position going into the election."

The usually risk-sensitive Australian AUD= and New Zealand dollars NZD= dipped only marginally overnight and were firm in the early part of the Asia session. AUD/

The Japanese yen JPY= did not move much as U.S. equities sold off, and was steady at 104.76 per dollar in Asia. Sterling GBP= slipped overnight but was back above $1.30 on Tuesday.

A week out from polling day, national polls give Democrat Joe Biden a solid lead but the contest is much tighter in battleground states that could decide the outcome.

Biden and President Donald Trump both spent Monday campaigning in Pennsylvania.

Analysts regard a Biden victory, and especially Democrat control of the Senate, as negative for the dollar since it is expected to deliver big stimulus spending that would boost investor sentiment and drive demand for riskier currencies.

Positioning data showed long bets on the yen shrank for a fourth straight week last week, as investors wagered on a Biden victory, though short bets against the yen also fell - pointing to heightened uncertainty around the vote. 0#NETUSDFX=

The euro nursed losses at $1.1809, having borne the brunt of worries about fresh coronavirus lockdowns and slipping after the German Ifo business climate index fell by more than expected and for the first time in six months in October.

Traders are waiting for any news to emerge from a meeting of China's Communist Party leaders to set the next five-year plan, while keeping a wary eye on the potential fallout from U.S. arms sales to Taiwan.

China said it will impose sanctions on Lockheed Martin LMT.N, Boeing Defense BA.N and Raytheon RTX.N.

Elsewhere the Turkish lira TRYTOM=D3 hit a record low on Monday amid a slew of geopolitical concerns and as a surprise central bank decision to keep its policy rate on hold last week reveberates through markets.

========================================================

Currency bid prices at 8:31AM (031 GMT)

Description

RIC

Last

U.S. Close Previous Session

Pct Change

YTD Pct Change

High Bid

Low Bid

Euro/Dollar

EUR=EBS

$1.1814

$1.1810

+0.04%

+5.38%

+1.1815

+1.1805

Dollar/Yen

JPY=D3

104.8100

104.8500

+0.00%

-3.47%

+104.8800

+0.0000

Euro/Yen

EURJPY=

123.81

123.80

+0.01%

+1.53%

+123.8600

+123.7100

Dollar/Swiss

CHF=EBS

0.9076

0.9078

-0.01%

-6.20%

+0.9082

+0.9077

Sterling/Dollar

GBP=D3

1.3021

1.3022

+0.02%

-1.80%

+1.3023

+1.3016

Dollar/Canadian

CAD=D3

1.3196

1.3213

-0.10%

+1.61%

+1.3211

+1.3199

Aussie/Dollar

AUD=D3

0.7129

0.7123

+0.10%

+1.62%

+0.7132

+0.7116

NZ Dollar/Dollar

NZD=D3

0.6683

0.6678

+0.12%

-0.64%

+0.6686

+0.6675

All spots FX=

Tokyo spots AFX=

Europe spots EFX=

Volatilities FXVOL=

Tokyo Forex market info from BOJ TKYFX

(Reporting by Tom Westbrook Editing by Shri Navaratnam)

((tom.westbrook@tr.com; +65 6318 4876;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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