XM Investment Research Desk: The US dollar resumed its downtrend against the yen on Tuesday as recent soft economic data continued to dampen expectations of a Fed rate hike.
Traders were also cautious ahead of the latest US inflation numbers due later in the day, while comments from San Francisco Fed President John Williams also weighed on the greenback.
Writing in a publication by the San Francisco Fed, Williams highlighted the limitations of monetary policy when there is little room to cut rates lower and urged a rethink of fiscal policy. The comments underlined the concern among global policymakers of the current environment of low growth and low inflation.
The dollar hit a 5-week low of 100.14 yen in Asian trading today before rebounding slightly to around 100.30 in late session.
The yen headed higher against all its major counterparts today despite weaker-than-expected second quarter GDP data out of Japan yesterday, which signalled the need for further monetary stimulus. Japans economy grew by an annualized rate of 0.2% in the second quarter of the year, missing estimates of 0.7% and sharply slower than the upwardly revised 2.0% rate seen in the first quarter.
The Australian and New Zealand dollars rose on the back of the weaker dollar and higher commodity prices. The aussie climbed back above the 0.77 level against the greenback and the kiwi rose sharply above 0.7250 in late Asian session. Helping the aussie higher were the minutes of the RBAs last policy meeting, which failed to provide a strong enough signal that rates will be cut further.
However, the RBA did reveal it was worried that further easing by other central banks would exert upward pressure on the aussie, while it was also aiming to lift growth when it cut rates on August 2. Oil prices fell back slightly on Tuesday after climbing to one-month highs yesterdays on growing hopes of an agreement between Russia and OPEC members to limit production.
WTI futures were slightly down at $45.45 a barrel, while Brent crude was trading at just below $48 a barrel. The rally in oil prices helped the Canadian dollar extend its gains for a seventh day, firming to 1.2891 per US dollar in late Asian session.
Gold also benefited from the rebound in commodity prices and a weaker dollar to rise by 0.7% at $1348 an ounce. In European currencies, the euro was back above the 1.12 level against the dollar at 1.1227, while the pound moved away from one-month lows to edge up to 1.2915 dollars in late Asian trading.
The pound will likely stay in focus this week as the first batch of official data post the Brexit referendum are released, starting with the July inflation figures later in the European session. Also coming up later in the day are the latest German ZEW survey, as well as US inflation and industrial output data.