Canadian dollar rallied. Is Dollar still at 20-year highs? 

Commodity currencies, such as the Australian dollar and the Norwegian crown, rebounded on Tuesday after plunging to their lowest levels in almost two years against the U.S. dollar. They tracked a rebound in European and Chinese stock markets during today’s session. Despite that, investors thought sentiment remained fragile. As a result, the safe-haven greenback remained near a 20-year high. Furthermore, the Euro traded flat due to risk aversion.

On the other hand, the Norwegian crown jumped by 0.5% to 9.6635 crowns per dollar after tumbling to its lowest level since June 2020. The Australian and Canadian dollars both climbed up after dropping to their weakest point since 2020. Commodity currencies plummeted overnight to multiple-year lows as oil prices declined by more than 1%. Fears of recession, along with an economic slowdown in China, which is the top oil importer, had hurt the currencies before they managed to trim some of those declines.

Francesco Pesole, the FX strategist at ING, noted that commodity-linked currencies have a high correlation with swings in market risk sentiment. Thus, they followed both yesterday’s equity selloff lower and today’s rebound in European stocks higher. On Monday, European stocks surged forward after a sharp selloff. In addition, China stocks recovered thanks to Beijing’s vows to support its struggling economy.

Any further recovery in risky currencies should come mostly to the detriment of the greenback, – added Pesole. But analysts do not expect any correction in the U.S. currency to have long legs in the current FX market environment.

Neil Jones, the head of FX sales at Mizuho, also noted that there is possibly a slight shift in sentiment towards China. He added that if market participants are trading commodity currencies, they really need to focus on the performance in that region.

The Euro may remain low for a time. How is Sterling faring? 

The common currency flattened against the USD at $1.0559 on Tuesday. It struggles due to fears about impeding the eurozone crisis. However, the sterling rose by 0.1% to $1.2340. Jane Foley, head of FX strategy at Rabobank in London, noted that she would describe sentiment as fragile considering the overhang of the war in Ukraine, the Federal Reserve’s tightening, and coronavirus restrictions in China. Moreover, analysts expect the greenback to remain well underpinned by safe-haven flows in the medium term.

The dollar index decreased by 0.1% to 103.59 against the basket of six major currencies on Tuesday. Before that, it had soared as high as 104.19 on Monday, hitting a 20-year peak. Overnight remarks from Atlanta Fed President Raphael Bostic were also a factor in the slightly weaker greenback. He hosed down talk of a 75-basis point rate hike at the agency’s next meeting, causing U.S. Treasury yields to halt their march higher.

On Tuesday, the Aussie dollar traded higher by 0.1% at $0.6957 after tumbling as low as $0.6911 to its lowest level since July 2020. The currency had fallen 1.7% overnight. The Canadian dollar also added 0.1% to C$1.29940 after plunging to its weakest level since November 2020.

What about the EM currencies? 

Asian stocks tracked Wall Street declined on Tuesday as traders worried that rate hikes planned by the U.S. Fed could lead to an economic slowdown. Currency markets also outperformed amid slight weakness in the greenback. Markets in Indonesia fell as much as 3.6% to their lowest level since early February, at last trading almost 1.3% lower. U.S. equities also dropped overnight, with one of the three major stock indexes tumbling past a key support level. The tech-heavy Nasdaq index also ended in the red, lowering by more than 4%.  

Meanwhile, Philippine stocks shaved off 0.6%. ING analyst Nicholas Mapa thinks that was partly a reaction to Ferdinand Marcos Jr likely winning the presidential election in the country. According to a survey, he is the least favored candidate by the investor community.

The peso climbed up by 0.4% to outperform other regional currencies. Other regional currencies also traded in the green amid a slightly weaker greenback and firmer Chinese yuan. China stocks also rose after the country’s central bank promised further support for its economy.

Fiona Lim, a senior FX strategist at Maybank, stated that the pullback in (U.S. Treasury) yield overnight could have given the USD-Asian pairs a breather. But she warned that growth concerns stemming from China’s coronavirus strategy might continue to linger in the near term.

The yuan jumped by 0.2%, while India’s rupee gained 0.1% after hitting a record low yesterday. The Singapore dollar added 0.1%, as well.