Dollar falls as investors cut bets on rising US rates, loosening lockdowns in China

The euro and yen rose, with the yen up 0.1 percent to 127.83 per dollar and the euro up 0.2 percent at $1.05 following last week's 1.5 percent gain on the dollar. The US dollar index fell 0.1 percent to 102.79, about 2 percent beneath a two-decade high of 105.01 made earlier in May.

"The dollar may be carving out a peak, given Europe’s resilience to the energy shock and potential easing of lockdowns in China," said Commonwealth Bank of Australia strategist Joe Capurso.

"Given the type of policy support, we expect investment to rebound faster than consumer spending," he said. "Investment is mining commodity-intensive (and therefore) very positive for commodity currencies such as the Australian dollar and Canadian dollar, in addition to the yuan."

Shanghai is edging out of lockdown and an unexpectedly big rate cut in China last week has been taken as a signal that authorities are going to provide support to the recovery. The city of 25 million expects to lift its city-wide lockdown and return to more normal life from June 1.

The yuan had its best week since late 2020 last week and firmed to 6.68 per dollar in offshore trade early on Monday. The Canadian dollar rose for a third straight week last week and was a touch higher at C$1.28 per dollar early on Monday. Sterling leaped nearly 2 percent last week on the back of stronger-than-expected retail data and markets' broader re-think on whether global central banks are lagging much behind the Federal Reserve. It was last up 0.3 percent at $1.25.

Geopolitics is in focus in Asia this week as US President Joe Biden tours the region, promoting greater US economic engagement and seeking to push back against China's influence. He meets Japan's Emperor on Monday ahead of talks with Prime Minister Fumio Kishida.

Australia elected a new government on Saturday, though the market reaction was muted as polls had predicted victory for the center-left Labor Party and it is not expected to shift the direction or pace of interest rate rises.

The Reserve Bank of New Zealand is expected to lift its benchmark cash rate by 50 basis points on Wednesday. US Federal Reserve meeting minutes are also due on Wednesday.