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[SYDNEY] The greenback nursed broad losses early on Wednesday, having suffered its biggest one-day fall in over a year as investors cut long positions in a torrid session for dollar bulls.
The market instead snapped up commodity currencies on a further recovery in oil prices and a surge in copper, while some optimism that Greece may yet secure a new debt deal shored up the euro.
The common currency jumped as far as US$1.1534 from Tuesday's low of US$1.1312. It last traded at US$1.1470, well off an 11-year trough of US$1.1098 set last week.
That contributed to a 0.9 per cent slide in the dollar index, its biggest one-day fall since Oct 2013. The index last traded at 93.709.
Greek Prime Minister Alexis Tsipras sought to reassure international partners that Athens did not want to create divisions in Europe with its call for a new debt accord and said he was open to listening to alternative proposals.
Yet, there was still a lot of uncertainty whether Tsipras will be successful, suggesting the rally in the euro was more about positioning rather than any change in fundamentals, traders said.
Commodity currencies stole the show for a second session with crude oil up about 19 per cent over the past four sessions, while copper saw its biggest one-day gain since July 2013.
The Australian dollar bounced back above 78 US cents , staging an impressive turnaround from a slump to a six year trough of US$0.7627.
The short-covering rally must have been painful for traders who sold the Aussie after the Reserve Bank of Australia (RBA) on Tuesday cut interest rates to a record low 2.25 per cent.
The Canadian dollar jumped for a second session to two-week highs of C$1.2353 per US dollar. It last traded at C$1.2428.
Sterling saw its best session in nearly 10 months. It climbed to US$1.5163, pulling further away from a near 19-month low of US$1.4952 set last month.
Against the yen though, the dollar managed to hold its ground as US Treasury yields jumped. It was little changed at 117.58, having recovered from a low of 116.87.
Traders said the dollar's rally to multi-year highs against the yen and euro could struggle as doubts emerge that the Federal Reserve can afford to hike interest rates this year. "When most central banks across developed and emerging economies are in easing mode, the assumption that the Federal Reserve will raise rates this year is starting to look questionable," said David Absolon, Investment Director at Heartwood Investment Management. "For Fed policymakers, the external environment and the actions of other central banks are becoming increasingly hard to ignore," he wrote in a note to clients.