Commodity currencies rose on Tuesday with the Australian dollar hitting a 10-month high while the yen edged lower after oil prices appeared to stabilize from a sharp slide, underpinning risk sentiment.
The Aussie and other commodity currencies benefited from oil’s bounce off lows touched on Monday, when they came under pressure after major oil producing countries failed to agree on an output freeze on Sunday.
Brent futures LCOc1 were last down 0.6 percent at $42.65 a barrel, but well above Monday’s low of $40.10. Oil prices had edged higher earlier on Tuesday, supported by a Kuwaiti oil industry strike that has led to a cut in the country’s oil production.
As risk appetite in broader financial markets also recovered, the U.S. dollar held the upper hand against the low-yielding yen.
The dollar gained 0.2 percent to 109.08 yen JPY=, having bounced back from a one-week low of 107.75 hit on Monday.
“It seems as if the downside will be limited at least in the short term,” said Teppei Ino, an analyst for the Bank of Tokyo-Mitsubishi UFJ in Singapore, referring to the outlook for the dollar against the yen.
The chances of the dollar falling below its near 18-month low of 107.63 yen set last week seem low for now, especially after the U.S. currency managed to hold above that level on Monday, Ino said.
The yen showed little reaction to news that Japan’s government nominated Takako Masai, an executive at Shinsei Bank Ltd (8303.T) and an advocate of aggressive monetary easing, to join the Bank of Japan’s policy board.
CENTRAL BANK MEETINGS
Major currencies showed a muted response to comments from central bank policy makers in the United States and Japan.
New York Fed President William Dudley, seen as close to the Fed’s mainstream thinking, said on Monday U.S. economic conditions are “mostly favorable” yet the Federal Reserve remains cautious in raising interest rates because threats loom.
On the other hand, Boston Fed President Eric Rosengren said the Fed is set to hike interest rates more rapidly than investors currently expect – comments echoing many other regional Fed chiefs.
“There’s a clear divide between the Fed governors and regional Feds and we have to see how this will pan out,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.
Bank of Japan Governor Haruhiko Kuroda said in an interview with the Wall Street Journal that the trend in inflation could be affected if the yen continued to appreciate excessively.
Both the Federal Reserve and the Bank of Japan are due to hold policy meetings next week.
Traditionally, interest rate gaps between the U.S. and Japan have been a key driver of the dollar/yen exchange rates, although correlation has weakened considerable in recent months.
Ahead of the Fed and the BOJ, the European Central Bank will hold its policy meeting on Thursday.
The euro EUR= held steady at $1.1320, having pulled up from a two-week low of $1.1234 set last week.
Elsewhere, the Brazilian real fell more than two percent BRL= on Monday following a lower house vote to impeach President Dilma Rousseff.