By Gertrude Chavez-Dreyfuss, Saikat Chatterjee and Julien Ponthus

NEW YORK/LONDON (Reuters) – Commodity currencies rallied in choppy trading on Tuesday led by the Australian dollar, boosted by the prospect of policy tightening by the Reserve Bank of Australia (RBA), while the euro fell on French election worries and the likelihood of more sanctions on Russia over Ukraine.

The Aussie dollar paced gains among commodity currencies after the RBA dropped its pledge to be “patient” on tightening policy, while holding the key rate at a record low for now, as was expected. The New Zealand and Canadian dollars, as well as the Norwegian crown, rose in tandem with the Aussie currency.

The Aussie dollar surged 1.1% to US$0.7621, while the New Zealand dollar gained 0.6% to US$0.6996.

“We’re starting to see monetary policy elsewhere catch up with the Federal Reserve,” said Simon Harvey, head of FX analysis at Monex Europe, in London. “The general belief on current Fed pricing is that it is pretty well-priced and there isn’t much room to ratchet expectations higher.”

Expectations about Fed rate hikes have supported the greenback as higher U.S. rates enhance the appeal of dollar-denominated assets. Since the beginning of the year, the dollar index has gained more than 3%.

In mid-morning trading, the dollar index was up 0.2% on the day at 99.165, after hitting a one-week high of 99.189.

The euro, on the other hand, was down against most currencies, except the yen.

Concerns about the outcome of the French elections have prompted traders in the euro to buy put options around $1.07-$1.09 for end-April expiry, Refinitiv data shows.

French financial markets acknowledged the possibility of far-right candidate Marine Le Pen beating President Emmanuel Macron in this month’s elections, with sharp losses on Paris’s blue chip index and government bonds. [L5N2W32MF]

Also impacting the euro is the possibility of more Russia sanctions.

The United States and European countries pledged on Monday to punish Moscow over civilian killings in northern Ukraine. The Kremlin denied accusations related to the murder of civilians.

New sanctions could include restrictions on the billions of dollars in energy that Europe imports from Russia.

Against the U.S. dollar, the single currency briefly fell to a more than one-week low of $1.0936 and was last down 0.2% at $1.0944. The euro reached a one-month high of $1.1185 just days earlier amid increased optimism over an end to the Ukraine conflict.

Expected price swings for the euro, or implied volatility, climbed to three-week highs as traders braced for more sanctions.

The euro’s biggest losses on Tuesday were against the Swedish crown and Swiss franc, with falls of 0.5% and 0.2% respectively to 10.282 crowns and 1.014 francs.

The greenback rose 0.4% against the yen to 123.28 yen, broadly tracking moves in long-term U.S. Treasury yields and retreating from a multi-year high of 125.105 on March 28.

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Currency bid prices at 10:32AM (1432 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 99.1330 98.9850 +0.16% 3.627% +99.1910 +98.8370

Euro/Dollar $1.0942 $1.0970 -0.25% -3.74% +$1.0989 +$1.0936

Dollar/Yen 123.2950 122.7600 +0.44% +7.11% +123.3400 +122.3750

Euro/Yen 134.89 134.68 +0.16% +3.51% +135.1200 +134.3000

Dollar/Swiss 0.9284 0.9266 +0.19% +1.78% +0.9284 +0.9238

Sterling/Dollar $1.3129 $1.3115 +0.11% -2.92% +$1.3166 +$1.3104

Dollar/Canadian 1.2435 1.2489 -0.43% -1.65% +1.2493 +1.2403

Aussie/Dollar $0.7632 $0.7543 +1.23% +5.05% +$0.7661 +$0.7536

Euro/Swiss 1.0158 1.0162 -0.04% -2.03% +1.0171 +1.0133

Euro/Sterling 0.8331 0.8368 -0.44% -0.82% +0.8374 +0.8333

NZ $0.6993 $0.6951 +0.56% +2.13% +$0.7034 +$0.6944

Dollar/Dollar

Dollar/Norway 8.6840 8.7325 -0.56% -1.43% +8.7335 +8.6600

Euro/Norway 9.5020 9.5636 -0.64% -5.10% +9.6612 +9.5008

Dollar/Sweden 9.3926 9.4155 -0.58% +4.16% +9.4356 +9.3490

Euro/Sweden 10.2776 10.3372 -0.58% +0.43% +10.3495 +10.2572

(Reporting by Gertrude Chavez-Dreyfuss in New York, Saikat Chatterjee and Julien Ponthus in London; Editing by Alexander Smith and Mark Potter)