US dollar slips against commodity currencies after OPEC deal

29/09/2016 06:05 AST

The US dollar hit a roughly five-month low against the Norwegian crown and fell against other commodity-linked currencies on Wednesday after OPEC sources told Reuters the producing group agreed to reduce its oil output.

The agreement on Wednesday marked the first time the group cut its oil output since 2008. Two sources in the Organization of the Petroleum Exporting Countries said the group would reduce output to 32.5 million barrels per day from current production of 33.24 million bpd.

Currencies of countries that rely heavily on energy or raw material exports, such as the Norwegian crown and the Canadian and Australian dollars, gained against the greenback after the report.

The gains tracked a rally in oil prices, which settled more than 5 percent higher. The dollar fell nearly 1 percent against the crown to a roughly five-month low of 8.0403 crowns after the report. The greenback also sank to a five-day low against the Canadian dollar of C$1.3088, about 0.8 percent lower on the day.

"The price action suggests it was a bit of a surprise," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York, in reference to commodity currencies' gains after the Reuters report.

"The next step to whether this has staying power is to see what kind of implementation there is," he said. The dollar index, which measures the greenback against a basket of six major currencies, was last roughly flat at 95.451. Besides the moves in commodity currencies, traders awaited more US economic data for clues on the likelihood of a December Federal Reserve rate increase.

The euro was last roughly flat against the dollar at $1.1212, with uncertainty about the state of European banks preventing investors from bidding the currency higher after Deutsche Bank shares touched record lows Tuesday.

Deutsche Bank, Germany's biggest lender, is fighting a $14 billion US demand to settle claims it missold mortgage-backed securities.

"People are waiting for more US data, but they're also on tenterhooks regarding the European banks," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York. "It's causing the euro to trade sideways until there is greater clarity."

The dollar was last up 0.24 percent against the yen at 100.67 yen, and was roughly flat against the Swiss franc at 0.9710 franc.

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