Dollar falls on Fed rate outlook, Aussie looks to RBA meeting

The dollar dropped to multi-year lows against its peers on Tuesday as the U.S. Federal Reserve’s shift in policy framework fueled speculation that U.S. rates will remain lower for longer. 

The Aussie stood at a two-year high against the dollar as traders awaited a Reserve Bank of Australia meeting later in the day. The yen traded in a narrow range as politicians fought over the position of next Prime Minister following Shinzo Abe’s resignation. 

Against the euro, the dollar slid to $1.1973 in Asian trade, its lowest since May 2018. The pound climbed to $1.3402, its highest since December 2019.

The dollar stood at 0.9021 on the Swiss franc, floating just above a five-year low. The U.S. currency also eased on the yen at 105.73.

The Fed’s shift in its focus to inflation and higher employment led investors to assume that benchmark rates will remain lower for longer, prompting a sell-off of dollar bears.

The dollar index slid to a two-year low of 91.947. A decline in long-term Treasury yields also weighed on the greenback. The yen is still in focus as investors place bets on who succeeds Shinzo Abe as prime minister. 

Abe’s longtime lieutenant Yoshihide Suga is the latest candidate for the position, backed by the ruling Liberal Democratic Party. Suga is expected to continue Abe’s policies, including Abenomics if he sits as prime minister.

The Aussie rose to $0.7398, nearing its highest level since August 2018. The kiwi steadied at $0.6756, close to its strongest level in two years. 

In onshore trade, the yuan rose to $6.8310, while the dollar also fell against most Asian currencies.