NEW YORK (TheStreet) -- Commodity currencies were gaining Tuesday afternoon as dollar weakness helped prompt a rebound in commodities and corresponding currencies.
The Australian dollar was up 0.6% against the dollar at $1.07658, the Norwegian Krone was 1% higher at $0.18234, the New Zealand dollar, or kiwi, was rising 0.4% at $0.79344 and the Canadian dollar was up 0.2% at $1.03624.
Commodities are frequently sought as a hedge against inflation and a weaker U.S. dollar. Meanwhile, a weaker-yielding U.S. dollar allows it to be used as a funding currency for riskier trades in commodity currencies.
"Also aiding commodity prices was European Central Bank [President] [Jean-Claude] Trichet not being as hawkish as he had been going into the ECB meeting," says Dean Popplewell, Oanda chief currency strategist.Last week, European policymakers left the key interest rate unchanged at 1.25%, and during a press conference that followed, Trichet spoke less hawkishly than expected -- dampening expectations of a rate hike in June. The Canadian dollar, also higher against the euro -- up 0.2% at EUR 0.72364 -- "has all the natural resources that the rest of the world wants, says Popplewell, who notes that the Canadian dollar is a "prime example" of the strong correlation between commodity currencies and the underlying asset. Popplewell notes a roughly 90% correlation between the direction of commodity currencies such as the Canadian dollar and commodities such as oil and gold. Commodity currencies receive this label from their economy's dependence on commodities production. The June crude oil contract gained $5.56 to trade at $102.74 a barrel. Gold for June delivery was up by $11.60 at $1,503.20 an ounce. The July silver contract added $1.83 at $37.12 an ounce.
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