Commodity currencies rebound but sentiment remains fragile

LONDON, May 10 (Reuters) – Commodity currencies The Norwegian krone and Australian dollar regained ground on Tuesday after hitting near two-year lows against the U.S. dollar, leading European and Chinese stock markets to rebound .

But traders said sentiment remained fragile and kept the safe haven dollar near a 20-year high, while risk aversion kept the euro flat.

Commodity currencies fell overnight to multi-year lows and oil prices fell more than 1%, hit by fears of recession and an economic slowdown in China, the main oil importer, before to reduce some of these declines.

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The Norwegian krone rose 0.5% to 9.6635 kroner to the dollar, after falling to its lowest since June 2020.

The Australian and Canadian dollars both rose slightly, after falling to their weakest levels since 2020.

“Commodity currencies have a strong correlation to swings in market risk sentiment and have followed both yesterday’s decline in equity selling and today’s rally in European equities higher” , said Francesco Pesole, FX strategist at ING.

European stocks rebounded after a strong sell-off on Monday, and Chinese stocks also rebounded on Beijing’s pledges to support its struggling economy, with signs of bargain-hunting in both markets.

There may be a slight shift in sentiment towards China, said Neil Jones, head of currency sales at Mizuho.

“If you’re trading commodity currencies…you really need to focus heavily on the performance of that region,” he said.

Any further rallies in risky currencies should come mostly at the expense of the dollar, ING’s Pesole added. “However, we don’t expect a dollar correction to have long legs in the current market environment.”

The euro flattened against the dollar at $1.0559 and the pound rose 0.1% to $1.2340. The British pound rose 0.15% to $1.23490.

“I would still describe sentiment as fragile given the war overhang in Ukraine, Fed tightening and COVID restrictions in China,” Jane Foley, head of FX strategy, at Rabobank in London.

“Over the medium term, we expect the US dollar to remain well supported by safe-haven flows,” she added.

The dollar index, which measures the greenback against six peers, edged down 0.1% to 103.59, after hitting 104.19 on Monday, a 20-year high.

Remarks by Atlanta Fed Chairman Raphael Bostic, who spoke of a 75 basis point rate hike at the next Fed meeting, also contributed to the slight weakness in the dollar, causing a pause US Treasury yields. Read more

The Australian dollar last rose 0.1% to $0.6957, after falling to $0.6911, its lowest level since July 2020, after falling 1.7% overnight . The Canadian dollar edged up 0.1% to C$1.29940, after hitting its weakest level since November 2020.

There was also excitement in the crypto markets, where bitcoin fell below $30,000 for the first time since July 2021, before bouncing back to trade 2.3% firmer at around 31. $600.

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Reporting by Joice Alves; Editing by Robert Birsel and Raissa Kasolowsky

Our standards: The Thomson Reuters Trust Principles.

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