LONDON: Commodity currencies such as the Australian and New Zealand dollar spiked higher on Wednesday, as markets regained some appetite for risk after Britain's shock vote last week to leave the European Union sent investors in search of safety.
Riskier currencies had slid along with sterling and the euro in the wake of the Brexit referendum, while the safe-haven yen surged, and volatility persisted into Monday. But as equities and oil prices recovered, traders made less safe bets, emboldened by the absence of any big new political shocks.
The New Zealand dollar rose more than 1 percent to hit $0.7118, its highest since Friday, when the commodity-linked currency had at one point fallen more than 4 percent.
Similarly, the Australian dollar gained 0.6 percent , while sterling, which had its biggest one-day fall in modern history on Friday, was up half a percent at $1.3408.
"I think people are looking at the situation and saying: maybe it's not all that bad and it can be localised," Altana currency fund manager Ian Gunner said. "The good side is that U.S. rates are not going up, so the rate environment is a lot more friendly for yield."
"But if you've got a situation that is affecting the whole of Europe, it has to raise some issues about the global economy, so I don't really think it will be full on risk-on from here ... I think the market is going to feel its way around for the next couple of weeks."
The EU's 27 member states, excluding Britain, will meet in Brussels today following Tuesday's summit with the British prime minister, to discuss how to respond to the Brexit vote. They are expected to launch a period of reflection, culminating in a set of EU reform proposals to be unveiled by next March.
"If things go in another direction in the next few days ... think that will determine if we continue to slide lower or not," UBS director of currency strategy in Zurich, Constantin Bolz, said, referring to the Brussels meetings.
Against a basket of currencies, the dollar inched down 0.1 percent to 95.914.
Analysts said the dollar was being held down by a turnaround of interest rate expectations from the U.S. Federal Reserve. Having been pricing in a hike this summer, markets are now pricing in a 10-percent chance of a cut by September, according to CME FedWatch.
As oil prices rose after the Brexit shock, and on a potential oil workers' strike in Norway, oil producers' currencies, such as the Canadian dollar and Norwegian crown also climbed.
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