SINGAPORE (Reuters) – The dollar steadied on Friday as a jump in U.S. bond yields and a drag on sentiment from lacklustre Chinese economic data put the brakes on a selldown of the world’s reserve currency.

China’s retail sales unexpectedly extended their fall into a seventh month in July and industrial output missed expectations – suggesting bumps in even the world’s most promising rebound.

The mood had the dollar within reach of snapping a seven-week losing streak against the risk-sensitive Aussie AUD=D3, which has settled around $0.7149 and is flat for the week.

Tepid demand in a long-dated U.S. government bond auction on Thursday has also extended a surge in Treasury yields that has drawn some investors – especially from Japan – back to dollars.

The yen JPY= is on course for its weakest week against the dollar in two months and is down about 0.9% at 106.84 from last Friday’s close.

The biggest loser has been the kiwi NZD=D3, which was pressured at $0.6538, as the country faces a fresh coronavirus outbreak and after the central bank this week flagged increased bond buying and again mentioned the prospect of negative rates.

“Risk sentiment is slowing down,” said Westpac FX analyst Imre Speizer. “It’s too early to say the whole (dollar) downtrend is over…but it’s got potential and at the very least it’s putting a cap on the Aussie and kiwi.”

Troubling signs also emerged on the health front in Asia, with 29 new cases in previously virus-free New Zealand prompting an extension of Auckland’s lockdown and the biggest daily jump in new cases in South Korea since March.

Against a basket of currencies =USD the dollar remains 0.2% lower for the week, but it has appeared to arrest a slide that has it about 9.5% below its March peak.

DIVERGENCE

Preliminary European employment and GDP numbers due at 0900 GMT and U.S. retail sales figures at 1230 GMT are the next set of data for investors to parse for signs of divergence between the U.S. and European recoveries.

Gathering faith in Europe’s rebound, and doubts in the United States as the virus spreads and politicians remain deadlocked over the next relief package, have kept the euro firm even as the dollar has been able to bounce a bit elsewhere.

A fall last week in the number of applications for unemployment benefits in the United States to below one million was welcome surprise, but with some 30 million out of work and stimulus plans stalled the outlook remains grim.

The euro EUR=EBS hung on at $1.1816 in the Asia session on Friday and the pound GBP=D3 was also steady at $1.3062, as investors have sought to focus on a rebound in growth in June rather than the diabolical quarterly contraction.

Another element of divergence has opened up in the Tasman Sea, where central banks on either side – in Australia and New Zealand – are striking quite a different tone.

The Reserve Bank of New Zealand (RBNZ) sparked a bond rally this week by promising to extend its own purchases and, next week, speed them up as well.

And while the RBNZ talked about sub-zero rates, Reserve Bank of Australia Governor Philip Lowe re-iterated on Friday that fiscal support was what’s needed.

“(The RBNZ) are pro-active,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

“And if they want something they don’t sit on their hands to see how things evolve, they make it happen, or at least they try. This to me is why AUD/NZD is likely going higher,” he said.

The Aussie last sat at a 22-month high of NZ$1.10941 AUDNZR=, having forged nearly 1% this week and the spread between Australian and New Zealand 10-year debt, at 28 basis points, is at its widest since May.

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