Commodity currencies extended yesterday’s gains into Tuesday’s Asian session as oil prices recouped most of their losses following the failure of talks on Sunday by major producers to limit supply. US oil futures recovered from Monday’s low of $37.59 a barrel to climb to $40.34 a barrel in Asian trading today.
The Australian dollar rose to a 10-month high of 0.7802, while the New Zealand dollar also climbed to its highest since June 2015 to break above the 0.70 level against the US dollar. The Canadian dollar was another strong performer as it strengthened to a 9-month high of 1.2736 to the greenback.
There was little reaction by the Aussie to the RBA’s April meeting minutes which were published earlier today. The minutes kept open the possibility of further rate cuts and acknowledged that “the appreciating exchange rate could complicate progress” in rebalancing the economy. However, the wording was not seen by analysts as strong enough to warrant immediate action by the RBA to ward off the Aussie’s recent gains.
The increase in risk appetite, which gathered pace in yesterday’s US session, helped US equities post sharp gains. The Dow Jones Industrial Average closed at its highest since July 2015, while the S&P 500 rose to levels last seen back in December.
In Asian markets, the Nikkei 225 index rallied by 3.7% today, which was boosted in part by a weaker yen. The Japanese currency retreated from three-year highs versus the euro and 2½-year highs versus the pound. It was also weaker against the dollar as the greenback reclaimed the 108 yen level but failed in its attempt earlier today to hold on to the 109 handle as it slipped back to 108.90 yen in late Asian trading.
The yen was weighed down on Tuesday by comments from Bank of Japan Governor Haruhiko Kuroda who said that the Bank would not hesitate to ease further if the yen’s excessive appreciation starts to affect inflation expectations.
The dollar was broadly weaker on Tuesday despite the risk-on sentiment as the euro and the pound both advanced against the US currency. Comments on Monday from Boston Fed President Eric Rosengren that the US economy is “doing well” on inflation and unemployment failed to boost the greenback. Rosengren also warned again that the market implied path of US rates is too pessimistic, suggesting that rates are likely to go up faster than that currently prices in by the futures markets.
The euro and the pound both climbed to one-week highs of 1.1344 and 1.4338 dollars respectively in late Asian session.
The pound could come under pressure later today when Bank of England Governor Mark Carney testifies in the House of Lords Economic Affairs Committee. One of the topics Carney is expected to talk about is the risks to remaining in the European Union.
Also coming up later today are the German ZEW economic survey, US housing starts and building permits and the latest global dairy auction. Meanwhile, more central bank speeches will come from the RBA’s Stevens and the Bank of Canada’s Poloz.