New York: The US dollar dropped against high-yielding currencies such as the Australian and Canadian dollars on Tuesday, while the yen fell after strong US bank earnings stoked risk appetite.
Growing expectations of interest rate hikes, and rising oil prices after some European flights resumed following five days of disruption by Iceland’s volcanic ash, further lifted the commodity-linked Australian and Canadian currencies.
Goldman Sachs, charged with fraud by the US Securities and Exchange Commission last Friday, reported first-quarter earnings nearly doubled. That boosted optimism about the global economy and knocked the yen off three-week highs versus the dollar hit on Monday.
“It seems like we’re seeing a bit of a risk-on approach again. So the commodity currencies like the Aussie and Canadian dollars in particular...are doing quite well,” said Gareth Sylvester, senior currency strategist at HiFX in San Francisco.
In afternoon trading, the dollar rose 0.8% to ¥93.21, after hitting a three-week low of 91.58 on Monday . The euro gained 0.5% to ¥125.27.
The yen also fell on the crosses, with Aussie/yen rallying 1.4% to 86.75 and sterling/yen rising 1% to 143.13.
The Australian dollar rose 0.7% against the greenback to US$0.9306 .
A coming boom in export earnings meant it could not delay a hike in interest rates, the minutes of the Reserve Bank of Australia’s April meeting showed.
The hawkish tone to the minutes led some investors and analysts to bet it may raise rates yet again by another 25 basis points as early as May.
The Canadian dollar soared, with the greenback last trading 1.6% at C$0.9986, after the Bank of Canada signaled it may raise interest rates as soon as June, making it the first G7 central bank willing to unwind emergency stimulus measures as the economy roars back after the recession.
In terms of technicals, traders said the currency pair formed a double bottom at around C$0.9950, a break of which would see an extension of a decline towards C$0.9830.
Financial markets have fully priced in a rate hike at the June meeting and have also factored in a 50 basis-point increase in July.
“It is clear that the bank has determined that the conditional commitment was not as sacred as the market had once imagined, and is instead paying tribute to the undeniable economic reality in Canada of robust economic growth and surprisingly high inflation,” said Eric Lascelles, chief Canada macro strategist, at TD Securities in Toronto.
The euro last traded down 0.4% at $1.3436, after rising to session highs on stronger-than-expected German ZEW economic sentiment data.
Concerns about debt troubles in Greece and other peripheral euro zone economies like Portugal continue to dog the euro, analysts said.
European Central Bank Governing Council member Axel Weber said Greece may require assistance of up to 80 billion euros to avoid default, according to a report in the Wall Street Journal on Tuesday.
That would be far larger than the €30 billion aid mechanism agreed by euro zone officials earlier this month.
Weber, however, denied he had said Greece might need as much as 80 billion euros, saying the numbers had been based on false interpretation of what he had said.