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The Australian dollar went nuts overnight

Photo: Getty Images

Aided by a rebound in commodity prices and mixed data from the United States, the Australian dollar ripped higher in overnight trade, touching a high of .7188 against the U.S. dollar before easing into the New York close.

The scale of the rally was near unprecedented, at least compared to recent times.

From its session lows of .7004 struck in Asian trade, the Aussie gained more than 2.5%, leaving it at levels last seen on January 5 this year.

Not only that, it is currently on track to record its largest one-day percentage gain since June 2, 2015. Over the past four years, the number of sessions with larger gains be counted on one hand.

AUD/USD 1-Day Chart

After pushing modestly higher during European trade, the Aussie’s gains really took off at the start of the U.S. session following dovish talk from New York Federal Reserve president Bill Dudley and a weak services PMI report from the United States.

Dudley, a permanent voting member of the Federal Reserve’s FOMC, told Market New International (MNI) that financial conditions in the U.S. “are considerably tighter than they were at the time of the December meeting”, adding “if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision.”

He also expressed concerns about what a broader global economic slowdown, leading to U.S. dollar strength, would do to the economy.

“On the one hand, you look at the U.S. and you say the direct effect of that to the U.S. is pretty limited, but obviously if the global economy were to take a significant downturn, or if all this pressure were to lead to a significant appreciation of the dollar, then it could have significant consequences back to the U.S.”

The dovish remarks, coming at a time of already heightened concerns over the outlook for the U.S. economy, saw expectations for further interest rate hikes from the Federal Reserve diminish further.

Shortly after those remarks hit the screens, a weak services PMI report for January saw losses for the dollar grow.

According to the Bloomberg Dollar index, the one-day loss for the greenback was the largest seen in seven years.

In response, gains in risk assets accelerated. Stocks bounced, crude surged over 8% and higher-yielding currencies such as the Australian and New Zealand dollars outperformed.

It was a potent mix that led to the unusually large move for the Aussie.

With little in the way of economic data arriving in Asia, the performance of Asian currencies – particularly the Japanese yen and Chinese yuan – will likely determine the performance of the Australian dollar today.

Here’s the current Australian dollar scoreboard as at 8.25am AEDT.

  • AUD/USD 0.7175 , 0.0137 , 1.95%
  • AUD/JPY 84.54 , 0.13 , 0.15%
  • AUD/CNH 4.7414 , 0.0776 , 1.66%
  • AUD/EUR 0.6460 , 0.0016 , 0.25%
  • AUD/GBP 0.4914 , 0.0031 , 0.63%
  • AUD/NZD 1.0754 , -0.0045 , -0.42%

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