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FOREX-Dollar near 2-1/2-wk peak on higher yields, trade tensions; Aussie slips
Published at 21/05/2019 at 04:37

* Graphic: World FX rates in 2019

* Bounce by U.S. yield from 8-wk lows, Sino-U.S. woes support USD

* RBA Lowe says c.bank to consider June cut, Aussie slips

* Powell: early to judge trade, tariff impact on monetary policy

(Adds details and quotes, updates prices)

By Shinichi Saoshiro

TOKYO, May 21 (Reuters) - The dollar was steady near a 2-1/2-week high on Tuesday, supported by higher U.S.-yields and its safe-haven status, with growing worries that the U.S.-China trade war could worsen following Washington's crackdown on China's Huawei Technologies.

The dollar index against a basket of six major currencies

was a shade higher at 97.965 after brushing 98.036 overnight, its highest since May 3.

Global equities have taken a hit this week, with share prices in chipmakers falling in the wake of the U.S. moves against Huawei.

"The dollar has established itself as a safe-haven and it attracts demand in times like this, with equities falling and market volatility rising," said Takuya Kanda, general manager at Gaitame.Com Research Institute.

"The bounce by Treasury yields is another factor supporting the dollar. The recent drop by the 10-year yield seemed overdone, and with Fed's Powell not providing clear hints of a rate cut this year, the rebound in yields could continue for a while."

Federal Reserve Chair Jerome Powell said on Monday that it was premature to make a judgement about the impact trade and tariff issues could have on monetary policy.

The 10-year Treasury note yield extended its overnight rebound and brushed an eight-day high of 2.428%. The yield had dropped to 2.354% last week, its lowest since March 28, after weak U.S. retail sales data increased rate cut expectations.

"Among industrialised nations, only Italy has a higher 10-year yield than the United States. Under such conditions, buyers have little choice but to turn to the dollar," said Daisuke Karakama, chief market economist at Mizuho Bank.

The 10-year Italian government bond yielded 2.705%, driven up by domestic political uncertainty and the country's rising debt. The 10-year German and Japanese yields stood at minus 0.088% and minus 0.05%

, respectively.

The euro was flat at $1.1165 after slipping to $1.1150 the previous day, its lowest since May 3. The single currency is expected to remain on a nervous footing through the May 23-26 European parliamentary election.

The dollar was 0.15% firmer at 110.195 yen , in touching distance of a two-week high of 110.320 scaled the previous day.

AUSSIE'S ADVANCE CUT SHORT

The Australian dollar was 0.25% lower at $0.6891, its earlier advance fizzling out after Reserve Bank of Australia Governor Philip Lowe said on Tuesday that the central bank will will consider the case for lower interest rates at its June policy meeting.

A cut would be the first since the RBA's last easing to a record low 1.50% in August 2016.

The Aussie had gained nearly 0.6% the previous day on a surprise election win by the country's conservative government. Investors had regarded the opposition Labor Party's economic policies as less business-friendly, and their relief at Labor's unexpected defeat drove a rally in Australian markets.

(Editing by Simon Cameron-Moore)

((shinichi.saoshiro@thomsonreuters.com; Reuters Messaging: shinichi.saoshiro.reuters.com@reuters.net))