Dollar recovers against commodity currencies on risk aversion

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The U.S. dollar gained against the yen and riskier commodity currencies such as the Australian and New Zealand dollars on Tuesday after the impact of dovish remarks from a top Federal Reserve official faded, boosting sentiment toward the greenback.

The dollar had tumbled on Monday after comments from Fed Governor Lael Brainard reduced traders' bets on a rate hike by the central bank next week. Some analysts said, however, that the dollar was regaining ground after an exaggerated reaction to Brainard's comments on Monday.

"The impact of Brainard might have been somewhat exaggerated really by the fact the market was already skewed towards thinking the Fed would not hike rates in September," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.

Traders trimmed their odds for a September rate hike to 15 percent on Tuesday, from 24 percent on Friday, according to CME Group's FedWatch program. Goldman Sachs further cut its view on the likelihood of a rate hike next week by the Fed, dropping it to just 25 percent, from 40 percent after Brainard's speech.

The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.41 percent at 95.433. The dollar was up 0.7 percent against the yen at 102.62 yen after falling as low as 101.43 yen in early trading.

The yen extended losses against the greenback after Nikkei reported the bank of Japan would delve deeper into negative rates.

The greenback touched a more than one-month high against the Australian dollar and a more than one-week high against the New Zealand dollar after falling against both currencies Monday in the wake of Brainard's remarks. Declines in oil prices also hurt the riskier commodity currencies on Tuesday.

The Australian and New Zealand dollars were last down about a percent against the dollar. The Aussie hit a session low against the greenback of $0.7486, while the New Zealand dollar hit a session low of $0.7271.


"What I'm seeing this morning is primarily risk aversion," said Kathy Lien, managing director at BK Asset Management in New York. "That's kind of driving the dollar higher."

The euro was last down just 0.11 percent against the dollar at $1.1223.