FOREX-Dollar loses some overnight gains, Aussie slides 1%

FOREX-Dollar loses some overnight gains, Aussie slides 1%

SINGAPORE Reuters -- The dollar lost some of its overnight gains on Tuesday after investors flocked to the safe-haven currency on the nerves over China's COVID flare ups, but cautious risk sentiment kept the greenback in demand.

The new bout of risk aversion had weighed particularly on the antipodean currency - often used as a liquid proxies for the Chinese yuan - with the Aussie sliding nearly 1% overnight. It last gained 0.12% to $0.6614.

The kiwi fell more than 0.8% and was last 0.15% higher at $0.6109.

A surge in COVID cases sparking new restriction measures, China's capital warned on Monday that it was facing its most severe test of the COVID 19 pandemic. Deaths from the virus have been recorded in Beijing for the first time since late May.

The offshore yuan fell more than 0.7% overnight, but traded 0.1% higher at 7.1665 per dollar in early Asia trade on Tuesday.

The safe haven appeal of the US dollar is coming back into vogue as concerns around China and the outbreaks from COVID are keeping markets nervous, said Rodrigo Catril, a currency strategist at National Australia Bank NAB. The Japanese yen fell more than 1% to the weaker side of 142 per dollar overnight and last traded 142.01.

The curiosity is that Japan has shown a great deal of sensitivity if anything, so the takeaway is that Japan's safe haven appeal is no longer there, said Catril, NAB's Catril. It's more like a cork in the ocean, subject to risk aversion as well as movements in 10 year Treasury yields. The Federal Reserve will hike rates as it attempts to bring inflation down from close to 40 year highs, and investors continued to re-price expectations for how high the yields across most maturities in the U.S. overnight.

The benchmark 10 year Treasury yield eked out a marginal gain overnight and last stood at 3.825%. The euro was up 0.09% at $1.0250, nursing some of its 0.8% overnight loss, while sterling gained 0.24% to $1.1843, after falling more than 0.5% overnight.

The U.S. dollar index was 0.06% lower at 107.71. It had risen close to 0.8% overnight, the largest daily gain since Nov. 3.

Today, Cleveland Fed President Loretta Mester said the central bank can downshift to smaller interest rate hike increments from next month, despite the fact that speakers delivered by Fed speakers delivered few surprises.

San Francisco Fed President Mary Daly said the real-world impact of interest rate hikes is likely greater than what its short-term rate target implies.

The comments of the Fed remained in line with the recent slant of rhetoric, said economists at ING in a note.

Following the collapse of FTX, Genesis was the latest victim to come under the spotlight.

Genesis has no plans to file for bankruptcy on Monday, according to Bloomberg News, which said Genesis is struggling to raise fresh cash for its lending unit, and warns investors it may need to file for bankruptcy if it doesn't get funding.

It was last 0.6% higher at $15,856, while Ether lost 0.05% to $1105.10.