Sterling and the commodity-exposed Australian and Canadian dollars all hovered near recent lows against the dollar as the market mood remained cautious. The dollar index held at 93.068, just below the one-week high it hit on Tuesday.
“The dollar is being supported by the nervous risk environment,” said Moh Siong Sim, currency analyst at Bank of Singpore.
“Markets are paying attention to the Delta variant and the area which is of most concern seems to be China,” he said.
“There’s a stock market that’s taken a bit of a beating recently, there’s regulatory risk and now there are COVID outbreaks in China – does this all add up to say that we should be paying a lot more attention to downside risks in China?”
China’s markets have been roiled by a wide front of reform and regulation and on Tuesday China moved to further tighten control of its tech sector, publishing detailed rules aimed at tackling unfair competition and data security.
At the same time, the highly-contagious Delta variant has found a foothold in formerly COVID-free New Zealand.
New Zealand’s central bank left interest rates unchanged at a record low of 0.25% owing to uncertainty around the outbreak, which the health chief thinks could run to 50 or 100 cases.
Markets are now pricing a 60% chance of a hike in October.
“The Reserve Bank was ready to pull the trigger, COVID comes along 24 hours earlier and so they’ve just pulled back on that,” said Jason Wong, senior market strategist at BNZ in Wellington.
“It depends on COVID now…if this lockdown’s short, then rate hikes are on the table, but there’s always going to be a half chance it continues longer and the market’s not willing to price a hike.”
Elsewhere, the risk-averse mood that had knocked sterling to a three-week low on the dollar on Tuesday persisted and held the British currency near that level at $1.3754.
The Japanese yen eased on the dollar overnight, but rose against other currencies and touched a 5-1/2-month high of 128.21 per euro in the Asia session. It last traded at 109.55 per dollar.
The commodity-exposed Canadian dollar recovered slightly from an overnight one-month low.
The trade-exposed South Korean won bounced from an 11-month low it touched on Tuesday after a government official said he was closely watching out for a possible overshoot in exchange-rate movements as foreigners sell stocks.
Later on Wednesday traders are looking to minutes from the Federal Reserve’s July meeting for clues around the timing or speed of plans to taper asset purchases. They are due at 18:00 GMT.
For a look at all of today’s economic events, check out our economic calendar.
(Reporting by Tom Westbrook; Editing by Sam Holmes & Shri Navaratnam)