US dollar steadies, yuan slips on central bank's orders

London

THE US dollar hovered near five-month lows on Tuesday, losing out to commodity currencies, as investors waited for economic data to indicate the future direction for major currencies.

The dollar index was back below 90 in early European trading, having hit as high as 90.447 on May 28, when a measure of US inflation closely watched by the Fed posted its biggest annual rise since 1992.

Fed officials, led by chair Jerome Powell, have said repeatedly they expect price pressures to be transitory and monetary stimulus to stay in place for some time, but investors are wary that a strong pandemic recovery could force the Fed's hand.

The euro was steady at US$1.2223, reacting little to data which showed euro zone inflation surged past the European Central Bank's target in May. Commodity currencies were generally stronger versus the dollar, as oil prices rose on expectations for growing fuel demand.

The Organization of the Petroleum Exporting Countries and allies - known as Opec+ - is likely to stick to the existing pace of gradually easing oil supply curbs when it meets on Tuesday, Opec sources said.

The Australian dollar was up around 0.1 per cent at 0.7738 at 1138 GMT. Australia's central bank left its cash rate at record lows and reiterated its lower-for-longer policy stance, even as data showed the country's output was above its pre-pandemic level.

The Norwegian crown was up 0.6 per cent against the dollar at 8.2545.

The New Zealand dollar was down 0.2 per cent at 0.7263. The Reserve Bank of New Zealand surprised markets last week by hinting at a future interest rate hike.

China's yuan was steady after authorities ordered banks to increase their foreign exchange reserve ratio, a move seen as an attempt to limit the fast yuan appreciation.

The offshore yuan was at 6.3831, down 0.1 per cent on the day, having crossed the key psychological 6.40 level last week and touched a new three-year high of 6.3524 on May 31.

Analysts said that although the central bank's move - which is expected to withdraw just US$20 billion worth of liquidity from the system - would slow the pace of the yuan's strengthening versus the dollar, it was unlikely to stop it completely.

Britain's pound hit a three-year high of US$1.425 during the Asian session.

The Canadian dollar was close to a six-year high versus the US dollar, up 0.3 per cent at 1.2036. REUTERS