Dollar falls against euro, commodity currencies on risk appetite

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The U.S. dollar hit 10-month lows against some commodity currencies on Tuesday on a growing appetite for risky assets and lost further ground to the euro after weak U.S. economic data reinforced views that Federal Reserve monetary policy would remain dovish.

The Australian dollar hit $0.7827, its highest level against the dollar since last June, while the New Zealand dollar touched $0.7055, also its highest since last June, on the back of gains in oil prices. The Canadian dollar hit its highest level since last July.

Analysts said a strike by oil workers in Kuwait, which continued for a third day and nearly halved production from the OPEC member, boosted crude prices and commodity currencies. Concerns over China's economic growth have also diminished, while the likelihood of a rapid string of Fed interest rate hikes this year has receded, they said.

The dollar gained against the safe-haven yen for a second straight day, however, as investors moved into riskier currencies. The dollar was last up 0.17 percent against the yen at 109.14 yen.

"People are getting a little bit more comfortable with prospects for growth," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Group Limited in New York.

Analysts noted that recent strength in Chinese economic data, particularly in manufacturing readings, have eased worries about the world's second-largest economy.

U.S. housing starts data supported expectations that the pace of Fed rate hikes would be slow, in turn hurting the dollar against the euro, analysts said.

Groundbreaking decreased 8.8 percent to a seasonally adjusted annual pace of 1.09 million units in March, the lowest level since October, the Commerce Department reported.

"It supports a more gradual path for Federal Reserve tightening," said Eric Viloria, currency strategist at Wells Fargo Securities in New York in reference to the U.S. housing data.

Yen retreats from highs

Fed funds futures contracts on Tuesday suggested traders saw only an 18 percent probability of another Fed rate hike in June, according to CME Group's FedWatch program.

Expectations that the European Central Bank would not announce further rate cuts in a meeting on Thursday also boosted the euro against the dollar, Viloria of Wells Fargo Securities said.

The euro was last up 0.48 percent against the dollar at $1.1362 after hitting a six-day high of $1.1382.

The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.47 percent at 94.05.