Commodity currencies slid to multi-week lows on Wednesday on the back of weakening raw material prices with the heaviest selling against the yen, which surged to its highest in two months as short sellers bailed out ahead of a central bank meeting.
The Aussie dollar fell as much as 0.5% and at $0.6583 was only a few pips from chart support at the early June low. It fell more than 1% to 101.79 yen and is down nearly 7% against the Japanese currency in two weeks. [AUD/]
The New Zealand dollar fell 0.6% to a near three-month low of $0.5914 while the Canadian dollar hit a three-month trough of C$1.38 per dollar.
The moves tracked falling prices for industrial metals such as iron ore and copper, which made three-and-a-half-month lows on a gloomy outlook for Chinese demand, and risk aversion in stock markets following some disappointing U.S. earnings.
"We're seeing softer demand in China and Asia in general and the kiwi and Aussie just being pulled down," said Jason Wong, senior markets strategist at BNZ in Wellington.
Markets are pricing in an 84% chance of a 25 basis point rate cut in Canada later on Wednesday, which would be the BoC's second cut in as many months.
The euro suffered after soft business activity data and was last down 0.2% against the dollar at $1.10833, unable to sustain last week's push above $1.09.
But the European common currency continued to climb against peers to the north, and was up 0.2% on the Norwegian crown at 11.97, a whisker off Tuesday's eight-month intraday top, and up 0.23% on the Swedish crown to 11.71.
"These are the two least liquid currencies in G10, and we suspect markets are particularly punishing this aspect and rebuilding those shorts that had been trimmed throughout May and June," said Francesco Pesole FX strategist at ING.
In Asia, the risk of a rate hike for Japan and recent rounds of suspected currency intervention have speculators rushing to close what had been profitable "carry" trades funded in yen. The Bank of Japan reviews policy next Tuesday and Wednesday.
Dollar/yen went down nearly 1% on Tuesday and fell another 0.6% on Wednesday in Asia to its lowest since mid-May at 155.36 per dollar. The yen is the best performing G10 currency against the dollar in July so far.
Moves in other pairs have been larger, with the euro dropping 1.3% on the yen overnight and a further 0.75% to an 11-week low of 167.48 on Wednesday.
Mexico's high-yielding peso dropped 2% on the yen on Tuesday and another 1.15% on Wednesday.
Later in the week, markets are waiting on U.S. GDP and core PCE data to test expectations for two U.S. rate cuts over the rest of this year. Next week's second-quarter inflation data in Australia will be crucial for pricing in the risk of another interest rate hike.
