Oil prices recovered on Tuesday, erasing overnight losses, as investors moved into risk assets and away from the safe-haven U.S. dollar, which tumbled to multi-year lows.
Brent crude futures climbed 49 cents or 1.1 per cent to $45.77 a barrel at 0406 GMT.
The U.S. West Texas Intermediate (WTI) crude futures rose 37 cents or 0.9 per cent to $42.98 a barrel, Daily Times gathered.
Both benchmark contracts fell around one per cent on Monday on worries about oil oversupply, with global demand stuck below preCOVID levels.
The U.S. dollar was last down 0.04 per cent at 92.146 against a basket of currencies, after hitting its lowest since May 2018 in the wake of the U.S. Federal Reserve’s policy shift on inflation announced last week.
“It (the policy shift) really cements the fact that you’re looking at negative real rates for the U.S. which will not be great for the U.S. dollar.
“That’s good for commodities,’’ said Louis Crous, Chief Investment Officer at BetaShares, an Australian exchangetraded funds provider.
The weakening U.S. dollar makes oil and other commodities priced in dollars more attractive to global buyers.
Overall, the market remains focused on the stalled recovery in fuel demand as countries continue to battle the coronavirus pandemic with rolling COVID-19 lockdowns, analysts said.
“This has created plenty of uncertainty about whether demand for transportation fuels will ever return to normal,’’ ANZ Research said in a note.
Ahead of the release of U.S. stockpile data from the American Petroleum Institute industry group, a Reuters’ poll found analysts expect U.S. crude stocks fell by about two million barrels in the week to Aug. 28. Gasoline inventories are seen falling by 3.6 million barrels, while distillate inventories, which include diesel and heating oil, are expected to drop by 1.5 million barrels, six analysts polled by Reuters estimated.
Meanwhile, the Australian dollar fell toward multi-year lows against most major currencies on Tuesday as the Federal Reserve’s new policy framework continued to fuel bets that U.S. rates will stay lower for longer than other countries.
The Australian dollar held around a two-year high against the greenback as traders wait for news from a Reserve Bank of Australia (RBA) policy meeting later on Tuesday to gauge policymakers’ views on the economy.
The yen was hemmed into a narrow range as politicians jockeyed to choose a new premier following Prime Minister Shinzo Abe’s shock resignation last week.
The U.S. data calendar this week is full of important releases on manufacturing, durable goods and employment, but positive results are unlikely to halt the dollar’s decline due to strong expectations that rates will remain extremely low.
“The dollar is weak, not only against G10 currencies but also against emerging market currencies,’’ said Minori Uchida, head of global market research at MUFG Bank in Tokyo.
“This shows the dollar is in a downtrend that will last for some time. “Low rates and an excess supply of dollars are driving this move.’’
Against the euro EUR=D3, the dollar fell to $1.1973 on Tuesday in Asia to reach its lowest since May 2018.
The British pound GBP=D3 rose to $1.3402, the highest since December last year, after Japan’s foreign minister said a broad agreement on a Japan-UK trade deal is close.
The dollar was quoted at 0.9021 Swiss francs CHF=EBS, just a shade above the lowest in more than five years.
The greenback eased slightly to 105.73 yen JPY=D3. The Fed’s historic switch last week to focusing more on average inflation and higher employment means it has leeway to keep benchmark rates lower for longer, which has encouraged dollar bears to sell the currency.
A decline in long-term Treasury yields, on Monday, highlights the strong headwinds facing the dollar.
Data due later on Tuesday is expected to show that U.S. manufacturing activity continued to expand in August, but this may not be enough to change the negative sentiment surrounding the dollar, analysts said.
Against a basket of six major currencies, the dollar index =USD slid on Tuesday to a two-year low at 91.947.
The yen was in focus as investors place bets on who will become Japan’s new prime minister.
The largest faction in the ruling Liberal Democratic Party has thrown its support behind Yoshihide Suga, who currently serves as Chief Cabinet Secretary.
Suga is a close ally of Abe and is likely to continue many of Abe’s policies if he becomes the new prime minister.
The Australian dollar AUD=D3 rose to $0.7398, close to its highest since August 2018.
The RBA is not expected to make any major changes at a policy meeting on Tuesday, but traders want to see how central bankers assess the economic outlook as the country grapples with a recent increase in coronavirus cases.
The New Zealand dollar NZD=D3 held steady at $0.6756, near its strongest in two years.
The onshore yuan CNY=CFXS surged to 6.8310, the highest in more than a year.
The dollar also fell broadly against other emerging Asian currencies, further underlining the greenback’s woes. Some investors may turn cautious due to increasing tension between the U.S. and China in the run-up to this year’s U.S. presidential election in November.
The U.S. said on Monday it was establishing a new bilateral economic dialogue with Taiwan in a move that is sure to anger Beijing because China claims Taiwan as its own territory.