SINGAPORE – The dollar suffered losses, found to be the lowest in six weeks on Tuesday, and commodity-linked currencies were hovering around multi-year highs. This occurred, as the focus of investors shifted to what the response of US Federal Reserve chief Jerome Powell might be to resurgent inflation expectations.
Increase in prices for materials such as oil, copper, lumber and milk powder have led currencies such as the Canadian, Australian and New Zealand dollars to their highest point in almost three years.
However gains have come their way, following a rise in inflation expectations worldwide and a big sell-off in longer-dated bonds.
Traders are looking forward to Powell, who will be testifying before Congress at 1500 GMT, to reassure that the Fed will be okay with experiencing higher inflation without putting pressure to raise rates. That might bring a respite to bond markets, which will eventually weigh on the dollar, they said.
“I think he will talk up the downside,” said Commonwealth Bank of Australia currency analyst Joe Capurso in Sydney.
“If anything, I think he will give markets a bit of a cold shower and say: ‘Mr Market you’re getting a bit ahead of yourself. There are plenty of risks…and the US economy is long, long way from full employment.'”
Asia trade was affected by a public holiday in Tokyo, however it found a boost in confidence that low US interest rates will not increase anytime soon, and could pave the way for further gains in currencies, which has had links to trade, at the dollar’s expense.
Positioning data shows more and more investors placing bets that a US dollar, which has been dropping since last March will continue to experience falls as the world tries to recover from the COVID-19 pandemic.
“The broad dollar retains a heavy tone, expect the dollar index to continue testing the 90.00 support,” said OCBC Bank strategist Terence Wu.
“Selling pressure remains strong for now. We turn slightly more cautious, but if dollar-negative views are still to be expressed, (we) prefer to do it through commodity currencies.”
The US dollar index fell to 89.941 on Tuesday, which is found to be its lowest since mid-January. The Australian dollar briefly hit its highest since early 2018, by purchasing $0.7934, while the kiwi managed to have a steady position around $0.7320. The Canadian dollar held just below Monday’s near three-year high.
The euro made a small gain to $1.2167 and is estimated to have a test again against resistance around $1.2220.
Sterling, which saw gains of nearly 3% this year as a speedy vaccine rollout has instilled confidence and hope among many about a British economic rebound, held above $1.40 at $1.4072.
The Japanese yen, which has been witnessing worst performances as a major currency of 2021, as rising US Treasury yields can attract investment from Japan, which steadied at 105.02 per dollar.
