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By Bloomberg

Dollar bulls have tended to retreat in the run-up to every Federal Reserve decision this year. It’s no different ahead of the two-day meeting starting Tuesday.

The Aussie and kiwi dollars led gains as investors were drawn to the highest-yielding currencies. That helped keep gauge of the greenback near the lowest in more than a week as China led a global equities slump that cast doubt on the Fed’s ability to raise interest rates as early as September.

“We have weak commodity markets and further volatility in Chinese equity markets,” said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp. in Sydney. “Traders are reacting to the possibility the Fed recognizes global factors as a risk to the outlook.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed at 1,204.70 at 12:23 p.m. in Tokyo from 1,204.57 in New York. It declined 0.4 percent on Monday and touched 1,201.91, the lowest since July 16. The gauge had weakened at least one day before the Fed policy decisions in January, March, April and June.

New Zealand’s dollar advanced 0.6 percent percent to 66.45 U.S. cents, adding to Monday’s 0.4 percent gain. The Aussie climbed 0.4 percent to 72.97 U.S. cents. It slid to 72.57 earlier Tuesday, its weakest level since May 2009, before shares in China, the South Pacific nation’s biggest trading partner, pared losses.

China Shares

The Shanghai Composite Index was 1 percent lower, after tumbling as much as 5.1 percent. It plunged 8.5 percent on Monday.

The greenback was little changed at 123.41 yen. It fetched $1.1079 per euro, after tumbling 0.9 percent to $1.1088 Monday.

The Bloomberg Commodity Index extended its plunge to a 13- year low Tuesday.

“Falling commodity prices have continued to undercut Fed rate hike expectations,” analysts at BNP Paribas SA, led by Steven Saywell, global head of foreign-exchange strategy, wrote in a note to clients dated July 28. “The loss of rate support has, in turn, undermined the U.S. dollar, primarily against the core low-yielder currencies, but even commodity exporter FX managed to gain back some ground.”

The probability that the Fed will increase its benchmark rate at its September meeting fell to 37 percent from 40 percent on Monday, according to futures data compiled by Bloomberg. The central bank has kept its benchmark in a range between zero and 0.25 percent since December 2008 to spur growth.

Fed Chair Janet Yellen, who will oversee the two-day Federal Open Market Committee meeting, reiterated in congressional testimony this month that that she expects the central bank to raise its benchmark rate this year, while emphasizing that the pace of increases after liftoff is likely to be gradual.

Waiting too long to raise interest rates holds risks for the U.S. economy, along with tightening too quickly, Yellen said. “There are risks on both sides,” she told the Senate Banking Committee.