SINGAPORE- The dollar nursed losses near a six-week low on Tuesday while commodity currencies loitered around multi-year highs, as investors’ focus shifted to how US Federal Reserve chief Jerome Powell might respond to resurgent inflation expectations.
Surging prices for materials from oil and copper to lumber and milk powder have pushed currencies such as the Australian and New Zealand dollars to their highest in nearly three years.
However the gains have come with a worldwide rise in inflation expectations and a big sell-off in longer-dated bonds.
Traders expect Powell, who testifies before Congress at 1500 GMT, to provide some reassurance that the Fed will tolerate higher inflation without immediately hiking rates, which they said could calm bond markets and eventually weigh on the dollar.
“I think he will talk up the downside,” said Commonwealth Bank of Australia currency analyst Joe Capurso in Sydney.
“If anything, I think he will give markets a bit of a cold shower and say: ‘Mr Market you’re getting a bit ahead of yourself. There are plenty of risks…and the US economy is long, long way from full employment.’”
Morning moves were slight ahead of his appearance, but renewed confidence that low US interest rates will not lift anytime soon can likely clear the way for further gains in trade-exposed currencies at the dollar’s expense.
