By Tom Westbrook
SINGAPORE (Reuters) - The dollar handed back a sliver of recent gains to commodity currencies on Tuesday as oil prices bounced back, but hung on against the yuan as traders weighed optimism about a coronavirus recovery in China against fears about rising Sino-U.S. tensions.
The Australian and New Zealand dollars inched ahead, after recouping Monday's falls - putting the Aussie
Public holidays in Japan and China lightened trade, while caution on the global growth outlook and looming Australian and New Zealand central bank meetings capped further moves.
The yuan
U.S. President Donald Trump has stepped up verbal attacks on China ahead of a Nov. 3 U.S. presidential election where both he and Democratic contender Joe Biden are jostling to project a tough stance against the United States' main strategic rival.
An internal Chinese report warns that Beijing faces a rising wave of worldwide hostility in the wake of the outbreak that could tip relations with the United States into confrontation, people familiar with the paper told Reuters.
Trump has floated tariffs, or even reneging on U.S. debt obligations to China as retaliatory possibilities as he seeks to pin blame for the COVID-19 pandemic, tempering traders' optimism about progress towards economic recovery elsewhere.
"The yuan is that bellwether that everybody's going to be looking at," said Stephen Innes, chief global market strategist at AxiCorp. Its softness muted gains in Asian currencies, such as Malaysia's ringgit
The cautious trading backdrop also pushed the yen ahead slightly to 106.53 per dollar
U.S. crude rose (CLc1) about 5% and Brent (LCOc1) around 3% as production fell and countries around the globe including Italy, Finland and several U.S. states eased lockdown restrictions.
Elsewhere, the euro was pressured by a court challenge from German academics to the European Central Bank's bond buying program.
A ruling is due later on Tuesday and while 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.
The euro (EUR=) last sat at $1.0914, close to a week-low hit overnight. The pound
The Reserve Bank of Australia (RBA) is due to announce its interest rate settings at 0430 GMT, with markets focused on commentary in the statement since a policy change is unlikely.
"The RBA's post-meeting statement could spark some AUD volatility if it offers further insights into the RBA's latest economic forecasts," said Commonwealth Bank of Australia (OTC:CMWAY) FX analyst Kim Mundy.