Commodity currencies gain on oil, China, as dollar consolidates

Commodity currencies held on to modest gains made on talk of possible Chinese stimulus and a notional bottoming-out of oil prices, while the U.S. dollar's payrolls-inspired rally ran out of steam.

The Australian dollar gained 0.4 percent to $0.7828, keeping some distance from a 5 1/2-year low of $0.7627 touched a week ago following a rate cut by the Reserve Bank of Australia.

Although the currency ticked down after Chinese inflation data showed consumer inflation hit a five-year low, hopes that Beijing would pump in more stimulus helped it reverse that course.

Commodity currencies took heart from a rebound in oil prices. Brent oil futures hit a six-week high on Monday, before ceding some gains on Tuesday.

"Very little in the way of data or developments to drive markets left higher oil as a key focus, which helped lift CAD and other commodity currencies to the top of the performance rankings," said Greg Moore, senior currency strategist at RBC Capital Markets.

Concerns over a standoff between Greece and its euro zone partners kept many investors on edge, weighing on the euro while supporting the yen, which tends to gain at times of international financial stress.

Greek Deputy Prime Minister Yannis Dragasakis said on Monday negotiations were ongoing with the European Union over the country's debt and bailout problems, but that no agreement had been reached.

The common currency bounced back to $1.1331, having found support at a one-week trough of $1.1270 on Monday.


All eyes are on eurozone finance ministers' meeting on Wednesday at the Eurogroup gathering, where the Greek finance minister has said he will present a comprehensive proposal.

As market players turned cautious, the dollar eased to 118.54, giving back about a third of Friday's 1.4 percent rally to 119.23.

"Concerns on Greece are resurfacing and the markets are turning risk-off," said Takahiro Suzuki, vice president of forex at Nomura Securities.

"While there are short-term players who are selling the yen, we could see more buying in the yen if the dollar/yen falls below 118 yen," he added.

All that left the dollar index a tad softer at 94.568. Still, it remained not far from an 11-year peak of 95.481 scaled last month.

Speculation that the Federal Reserve will hike interest rates some time this year has been a pillar of a dollar rally that started around the middle of 2014.

Doubts have grown in recent weeks whether the Fed will actually be able to tighten at a time when other major central banks were easing. But surprisingly strong payrolls data last Friday put the prospect of a 2015 hike back in play.