The Australian dollar performed an abrupt about-face overnight as the US dollar surged

Photo by Yuli Seperi/Getty Images

The Australian dollar, having pushed higher following the release of the RBA’s February monetary policy statement on Tuesday, did an abrupt about-face in overnight trade, slumping to as low as .7602 on the back of renewed, and rampant, US dollar strength.

It’s recovered in recent trade, but is still lower for the session. It’s trading mixed against the crosses.

Here’s the scoreboard as at 8am AEDT:

  • AUD/USD 0.7630 , -0.0027 , -0.35%
  • AUD/JPY 85.72 , 0.18 , 0.21%
  • AUD/CNH 5.2139 , 0.0082 , 0.16%
  • AUD/EUR 0.7137 , 0.0015 , 0.21%
  • AUD/GBP 0.6097 , -0.0043 , -0.70%
  • AUD/NZD 1.0436 , -0.002 , -0.19%

With little in the way of market moving data to digest during the overnight session, the rebound in the US dollar was put down to a combination of increased geopolitical risk, technical buying and hawkish remarks from Philadelphia Fed President Patrick Harker he would be open to raising interest rates again in March meeting should growth in US jobs and wages continues.

“I still am supportive of three rate hikes this year, of course with a major caveat, depending on how the economy evolves and policy, fiscal policy, evolves,” Harker said.” I think March should be considered as a potential for another 25-basis point increase.”

While those remarks arrived during the start of Asian trade, they were largely overlooked until European trade got underway, helping to spark buying in the US dollar.

Rodrigo Catril, currency strategist at the National Australia Bank, said that renewed concerns over European politics also played a part in the greenback’s resurgence.

“To some extent, the USD has won the least ugly contest as the focus appears to have shifted away from the US towards political and fiscal uncertainty in Europe,” he wrote on Wednesday morning.

“Although last night the 10-year French-German spread were little changed, Italian, Greek and Spanish spreads to Bunds have continued to widen, not only reflecting political concerns in the EU, but also a rising anxiety on the fiscal position of southern EU countries amid their debt issuance requirement and expected reduction of ECB bond buying.

“This is a theme worth keeping an eye on,” he said.

The US dollar was a clear benefactor, helping the US dollar index (DXY) break out of the downtrend it had been stuck in since early January.

The Aussie, despite a renewed surge in iron ore prices and an optimistic RBA, came under pressure as a consequence.

AUD/USD 5-Minute Chart

Whether that trend remains in play on Wednesday will likely be determined by investor sentiment with little in the way of market moving data on calendar.

There’s nothing to speak of with the exception of the release of current account figures from Japan along with the Bank of Japan ‘Summary of Opinions’ from its January 30-31 meeting where monetary policy was left unchanged.

They’re unlikely to create much of a stir for markets, suggesting that movement in the USD/JPY and USD/CNY — often influential on the US dollar during Asian trade — could drive the broader movements today, including in the Aussie.

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