By Tom Westbrook

SINGAPORE (Reuters) – The dollar was smarting on Tuesday following its sharpest one-day fall since May, though traders were wary of chasing the mood-driven move lower ahead of a Federal Reserve symposium that could map out an end to stimulus and asset purchases.

The greenback dropped more than 1% against the Australian dollar, Norwegian crown, Swedish crown and Canadian dollar overnight and fell by almost that much against the kiwi as markets focused on positive COVID news and stocks jumped higher.

The euro rose 0.4% to $1.1745. The U.S. dollar index fell just over 0.5% to a one-week low of 92.994, busting through an uptrend that had been gaining momentum and lifted the index by 1% last week.

“A positive risk backdrop has pushed flows out of the dollar,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne, who said positive analyst commentary around oil and cyclical stocks had also helped the broad mood.

“But I wouldn’t be going short dollars just because of this…it could easily flip up going in to Jackson Hole,” he added, referring to the Fed’s Friday symposium.

Further moves were slight early in the Asia session, leaving the Aussie steady at $0.7280, the kiwi at $0.6888 and sterling at $1.3720. [AUD/]

The Japanese yen and Swiss franc both rose above their 20-day moving averages as the dollar weakened, leaving the yen at 109.70 per dollar and the franc at 0.9123 per dollar.

Data overnight showed strong, but slowing services and manufacturing activity in Europe while business activity growth in the United States slowed for a third straight month as the spread of the Delta virus variant took a toll.

For some investors, that casts enough uncertainty over the outlook to make it unlikely that the Fed delivers much of a signal at all during the symposium, putting pressure on the currency because it has gained with taper expectations.

“The weight of positioning and expectations leaves the dollar exposed in the event Jackson Hole does not produce a clear and imminent Fed taper signal,” Westpac strategists said in a note.

“But any setback likely proves short-lived if key Fed officials stress confidence that ‘substantial further progress’ is on the horizon and that a slowing of asset purchases could commence in coming months.”

In the meantime, traders are again focused on COVID outbreaks in Asia – with China appearing to be gaining control of cases and investors hoping New Zealand can do likewise.

New Zealand is under national lockdown until Friday as an outbreak tops 100 cases, but the currency joined in the overnight bounce and the probability of a rate hike in October has crept back above 40%.

“On balance the market seems to be slanting toward the view that NZ will beat Delta, and if that is the case, that should put (interest rate) hikes and carry back on the table later in the year,” said analysts at ANZ Bank.

“The market has seen the kiwi bounce off $0.68 when all the chips were down, and that’ll likely be a solid base of support for now.”

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