High-yielding currencies, led by the Australian dollar, rose on Tuesday as investors added to risky trades amid strong gains in commodity prices and expectations of further interest rate increases in Australia.
Minutes from the Reserve Bank of Australia's February policy meeting cemented expectations for more interest rate hikes, boosting the Australian currency's appeal to global investors. The Aussie rose to three-month highs versus the greenback.
The yen, meanwhile, gained overnight on a brief bout of risk aversion following news about write-downs on risky assets from Barclays Plc and Credit Suisse. However, U.S. stocks opened higher, taking the steam out of the Japanese currency's rally.
This morning, we have seen investors add risk to their portfolios, said Matthew Strauss, senior currency strategist, at RBC Capital Markets in Toronto.
Stock futures are pointing to a higher open and commodities across the aboard are higher. We have also seen the high-yielders such as the Aussie and Kiwi (New Zealand dollar) gain, he added.
The Aussie dollar rose as high as US$0.9237, levels last seen in early November. It last traded at US$0.9215, up 0.9 percent from late on Monday.
Minutes from the RBA's February 5 policy meeting showed the central bank had debated a more aggressive 50 basis point rate hike. While the RBA decided in the end on a more modest 25 basis point rise in the cash rate to an 11-year high of 7 percent, the minutes pointed strongly to further monetary tightening ahead.
The New Zealand dollar rode on the coattails of the Aussie's rally, climbing to US$0.8022 -- its highest since July. In early new York trading, it was up 0.6 percent a US$0.7990.
The U.S. dollar was down 0.2 percent against a basket of major currencies .DXY at 75.974. Against the yen, it slid 0.5 percent to 107.68 yen.
Keeping investors cautious, Credit Suisse said it has written $2.85 billion off the value of its asset-backed investments, while Barclays Plc, Britain's third largest bank, raised its 2007 write-down on the value of risky assets to 1.6 billion pounds ($3.1 billion).
We saw the story out of Credit Suisse and Barclays. All of that plays out concerns about the health of the financial sector in the wake of the credit crisis, said Omer Esiner, market analyst at Ruesch International in Washington.
The euro rose to two-week highs of $1.4757, according to Reuters data, before slipping to $1.4729, still up 0.5 percent on the day. The single European currency was slightly higher versus the yen at 158.63 yen, but well off a three-week high near 159 yen set earlier.
The Japanese currency was also benefiting from talk of a Chinese interest rate hike after data on Tuesday showed a surge in China's consumer inflation to an 11-year high.
Investors are currently awaiting the NAHB/Wells Fargo Housing Market index due at 1:00 p.m.. The report is expected to show home-builder sentiment for February was unchanged from January. A weak reading, along with figures on U.S. housing starts later in the week, could bolster the view that a slumping housing sector could raise the risk of a recession, a further negative for the dollar.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama)