SYDNEY (Reuters) - The Canadian dollar and Norwegian crown held onto solid gains early on Tuesday, having rallied on a further rebound in oil prices which also led other commodity currencies higher as well.
With the U.S. dollar sidelined for the moment against the yen and euro, it was time for beaten-down currencies to regain some ground. The Canadian dollar rallied to C$1.2557 per USD, well off a near six-year low of C$1.2800.
The Norwegian crown climbed to 7.6142 per USD, up 2.3 percent in the past two sessions. It also rose against the euro, which plumbed a two-month low of 8.6292 crowns at one stage.
Investors took profits on very bearish positions as oil prices rose strongly again, fuelling talk that a seven-month rout has ended.
Other commodity currencies like the Australian and New Zealand dollars were also swept off their lows.
The kiwi dollar popped above 73 U.S. cents, pulling away from a four-year trough of $0.7215 set on Friday. It's Australian peer climbed above 78 U.S. cents, off a near six-year low of $0.7720.
The focus now is on the Reserve Bank of Australia (RBA) amid high expectations that it will announce a cut in interest rates at 0330 GMT, following its monthly policy meeting.
Debt markets imply a 62 percent chance of a quarter point cut in the 2.5 percent cash rate, having shortened the odds dramatically after both the Canadian and New Zealand central banks turned surprisingly dovish in recent weeks.
Analysts suspect the RBA will either cut rates, or lay the groundwork for an easing at the next meeting in March. Should the RBA maintain its pledge to keep interest rates steady, the Aussie will surely see a vicious short-covering rally.
"Given current market pricing, any outcome short of a cut may disappoint the market. Even a dovish statement implying a potential cut in the near future may not put much further pressure on AUD," Robin Winkler, analyst at Deutsche Bank wrote in a note to clients.
In contrast, the dollar was stuck in familiar ranges against the yen and euro. On Tuesday it was at 117.61 yen, having bounced from a low of 116.65 on Monday.
It has spent much of the past two weeks oscillating between 117.00 and 119.00 yen and show little sign of re-testing December's eight-year peak of 121.86.
The euro bought $1.1333, going nowhere after finding a floor at an 11-year trough of $1.1098. It has held to a $1.1262-$1.1384 range over the past few sessions.
Against the yen, the common currency was at 133.38, also drifting sideways after reaching a 17-month trough of 130.16 last week.