SYDNEY The U.S. dollar nursed modest losses early on Tuesday, having come under pressure as currencies such as the Canadian dollar staged a dramatic reversal thanks to a broad rebound in commodity prices.
Investors were quick to cut short positions in the Australian, New Zealand and Canadian dollars as prices of oil, copper and gold rallied from lows. Benchmark Brent crude, for example, jumped to $72.95 from a five-year low of $67.53 in a brutal squeeze of bearish positions.
As a result, the Norwegian crown raced to 6.9368 per USD from a 5-1/2 year low of 7.0577. The Canadian dollar rose to C$1.1327 per USD from a one-month low of C$1.1459.
The Aussie shot back above 85 U.S. cents, pulling away from a 4-1/2 year low of $0.8417 and its kiwi peer clambered to $0.7876 from $0.7777.
The greenback relinquished only a bit of ground against the yen and euro as upbeat comments from Federal Reserve Vice Chairman Stanley Fischer gave dollar bulls some confidence.
While Fischer did not comment directly on interest rate policy, his comments about wages and inflation suggest an upbeat outlook from the Fed's influential second-in-command.
The dollar drifted down to 118.37 yen, having hit a seven-year peak of 119.15 after Moody's cut Japan's sovereign ratings. The euro edged up to $1.2472 from $1.2419.
Investors were reluctant to get too excited on the euro ahead of Thursday's European Central Bank meeting, where some analysts expect more dovish comments from ECB head Mario Draghi.
Momentum is building for the ECB to launch a programme of sovereign-bond buying to boost the struggling euro zone economy, although most signs point to March for a decision.
In contrast, Australia's central bank is sure to hold interest rates steady for a 16 straight month when it concludes its policy review later in the day.
"Importantly, we expect the 'period of stability' guidance on rates to be maintained, which may be a knee jerk positive for AUD given market pricing of a 50 percent probability of a cut by April," said Greg Moore, senior currency strategist at RBC Capital Markets.
Aussie bears are likely to also keep an eye on local building approvals and current account data ahead of third quarter growth figures on Wednesday.
Above all, investors will be looking to see if commodity prices can continue to correct higher after the recent heavy drubbing.