FOREX-Dollar hits fresh three-year lows against commodity-linked currencies

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

(New throughout)
By Kate Duguid
NEW YORK, Feb 24 (Reuters) - Dovish testimony from Federal
Reserve Chair Jerome Powell on Wednesday bolstered bets on
reflation and fears of inflation, driving the U.S. dollar to
fresh three-year lows against commodity-linked currencies
including the Canadian, Australian and New Zealand dollars.
Powell reiterated on Wednesday that U.S. interest rates will
remain low and the Fed will keep buying bonds to support the
U.S. economy. Powell's remarks to the House of Representatives
Committee on Financial Services mirrored his testimony before
the Senate on Tuesday. Easy financial conditions, the promise of fiscal stimulus
and the COVID-19 vaccine rollout have driven money into the
reflation trade - which refers to bets on an upswing in economic
activity as well as in inflation.
Currencies expected to benefit from a pick-up in global
trade, like those linked to commodities, have benefited as have
those in countries like Britain, that are making progress
recovering from the coronavirus pandemic.
"The Fed staying the course has reinforced optimism in the
economic outlook, boosting currencies with close ties to global
growth. While the dollar has lost steam, its decline has been
slowed by elevated Treasury yields," said Joe Manimbo, senior
market analyst at Western Union Business Solutions.
The dollar's weakness in recent days has been more
remarkable as it comes against the backdrop of a broader rise in
U.S. yields. Benchmark 10-year borrowing costs US10YT=RR are
holding near their highest in a year. US/
But the Fed's commitment to low rates and the passage of
fiscal stimulus has some investors worried that inflation could
outpace growth. Those fears may be further supporting
commodity-linked currencies, because commodities rise with
inflation. The Canadian CAD= , Australian AUD= and New
Zealand NZD= dollars on Wednesday each hit their highest
against the U.S. dollar since early 2018.
"It is critical to make judgements on whether reflation
turns into excess reflation which then turns into inflation,"
said Alan Ruskin, chief international strategist at Deutsche
Bank.
Against the Canadian dollar, the greenback was last 0.61%
lower on the day at 1.251 CAD per dollar. The Australian dollar
was last up 0.67% to 0.796 per U.S. dollar. The Kiwi was last up
1.38% on the day to 0.744.
Overnight, the British pound GBP=D3 climbed past $1.42 for
the first time since April 2018.
The dollar index =USD against a basket of six major
currencies was at 90.058, down 0.07% on the day.

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