Greenback Modestly Lower as Stocks Recover

The dollar and yen weakened against other key currencies Tuesday as US equity markets rallied after Monday's sharp stock-market losses. This helped support risk appetite and lessen safe haven demand for the low-yielding currencies. The euro and sterling traded modestly higher before Thursday’s European Central Bank and Bank of England interest-rate decisions. Eurozone producer-price inflation fell making it easier for the ECB to cut rates aggressively. Former BOE policy maker Willem Buiter, while saying the BOE will weigh the risk of a possible currency crisis for the pound, expects a 150 basis-point rate cut Thursday. The Canadian dollar declined as crude oil fell to $47.45 a barrel, the lowest settlement since May 20, 2005.

The AUD/USD rose modestly after the Reserve Bank of Australia cut its benchmark interest rate 100 basis points to 4.25% and said the combination of monetary easing, currency depreciation and fiscal expansion represented a "significant policy stimulus" that would support demand over the year ahead. The Australian dollar is trying to build a base following nearly 35% depreciation since the summer. There is strong support in the 0.60-area as the RBA had intervened at this level and will likely do that again if needed. Strong resistance exists in the 0.70-area.