The Australian dollar fell heavily against the euro and yen overnight, but not against the greenback

Mandatory Credit: Craig Prentis /Allsport

The Australian dollar ended Wednesday’s session almost exactly where it started as a renewed bout of risk aversion across financial markets was offset by further US dollar weakness.

That meant that the Aussie largely tread water against the US dollar, but underperformed significantly against other major pairs such as the euro and Japanese yen.

Here’s the scoreboard as 8am AEST.

AUD/USD 0.7433 , 0.0002 , 0.03%
AUD/JPY 82.32 , 0.02 , 0.02%
AUD/CNH 5.1089 , 0.0056 , 0.11%
AUD/EUR 0.6658 , 0.0003 , 0.05%
AUD/GBP 0.5731 , 0.0007 , 0.12%
AUD/NZD 1.0702 , 0.0006 , 0.06%

The fact the AUD/USD closed at .7431, marginally higher than Tuesday’s closing level of .7426, was entirely driven by US dollar weakness rather than Australian dollar strength.

The US dollar weakened as nerves increased over the ability of Donald Trump to deliver on tax reforms, said Imre Speizer, senior market strategist at Westpac.

“News that former FBI Director Comey may be holding some controversial memos of Trump pressuring him to drop the Russia election ties investigation have raised the odds of a formal and independent probe,” he said in a note released this morning. “The market has interpreted this as potentially delaying the promised business-friendly reforms.”

And that took its toll on the US dollar.

The greenback was whacked with the narrow US dollar Index falling to 97.388, the lowest level since the day after the US presidential election. It has now completely unwound the rally seen following Trump’s election triumph, losing 6.2% in the process.

The latest move was driven by a sharp rally in US bonds with the yield on the benchmark 10-year note sliding to as low as 2.212%, the lowest level since April 21. The spread between 2 and 10-year US yields also narrowed to lowest level since before the US election.

That helped to support the Aussie against the greenback, but not against the euro and yen.

The AUD/EUR fell to as low as 0.6644, a level not seen since September 15 last year, while the AUD/JPY slid to 82.28, a one-month low.

The 2% plus fall in the latter was the largest in percentage terms since June 24 last year, the day after the US Brexit referendum.

Here’s the AUD/EUR daily chart.

AUD/EUR Daily Chart

While broader investor sentiment will remain a constant theme influencing movement in the Aussie dollar on Thursday, there are a number of important data releases arriving today, including Australia’s April jobs report at 11.30am AEST.

After an enormous surge in hiring in March, markets expect employment growth to slow sharply in April with an increase of 5,000 expected. The unemployment rate is tipped to remain steady at 5.9%.

This 10-second guide has all the details on what aspects of the report will be influential on the Aussie dollar.

Outside of the Australian jobs report, markets will also receive Japanese Q1 GDP along with Chinese new home price data for April.

Later in the session, UK retail sales, along with US jobless claims and the Philadelphia Fed manufacturing survey, will be released.

On the central bank front, ECB president Mario Draghi will speak along with Loretta Mester of the US Fed. US treasury secretary Steven Mnuchin will also be in action.

Plenty for markets to digest, along with the ebbs and flows emanating from Washington.

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