It's been a wild 24 hours for currency traders and US President Donald Trump's latest comment - that he wants "to see a strong [US] dollar" - is adding to the volatility.
At 9am AEDT on Australia Day, the dollar was 0.5 per cent lower at US80.26??; it ranged over the past day from a four-month high of US81.19?? to a low of US80.12??.
Volatility spiked across global markets - equities, bonds, commodities as well as currencies - after Mr Trump outright contradicted his Treasury Secretary Steven Mnuchin, and said that Mr Mnuchin's comments had been "taken out of context".
Earlier overnight, there had been a wave of criticism about the seemingly new US dollar position staked out by Mr Mnuchin from European Central Bank president Mario Draghi, International Monetary Fund boss Christine Lagarde and hedge fund billionaire Ray Dalio.
The first trigger for currency markets came with Mr Mnuchin saying yesterday in Davos that he saw advantages to a weaker US dollar. Overnight, Mr Mnuchin tried to walk back his comments, though to little effect: "It's not a shift in my position on the dollar at all. It is perhaps slightly different from previous Treasury secretaries."
While Mr Mnuchin said that he supported free and floating currencies, the US dollar continued to shed value through most of the overnight session until President Trump waded in.
"The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar," Mr Trump told CNBC from the World Economic Forum in Davos, Switzerland. "Our country is becoming so economically strong again and strong in other ways, too."
While the impact was instantaneous, it's not yet clear how long it will last.
"I suspect Trump's latest support for the dollar comments are more about optics and little more than a case of temporarily taming the dollar bear ahead of his Davos speech," Stephen Innes, OANDA's head of trading for APAC, said.
"Ultimately the market will decide the dollar fate and perhaps a bit early to bring out the eulogies this morning, the weaker USD dollar narrative remains intact for 2018," Mr Innes said in a note.
Ahead are two potential market-moving events: Trump's speech in Davos and the release of the advance estimate for US fourth quarter GDP. There also are durable goods and trade reports.
Aussie 'running rich'
President Trump's speech could help provide a still clearer direction on US dollar policy as he's widely expected to reinforce his campaign promise to put America First and signal he intends to make trade a top priority through his second year in office. Overnight he signalled that the US could return to the TPP table.
The dollar index was up 0.2 per cent to 89.35100 - it fell as low as 88.4380 overnight.
Ahead of Mr Trump's comments, TD Securities said the Australian dollar was "running rich" based on the firm's fair value estimates, "leaving AUD vulnerable external forces and local data. We also note that the market is now pricing in around an 80 per cent chance of a hike by August, which appears reasonable. Still, that leaves AUD sensitive to any pushback in pricing and more importantly any swings in market sentiment or risk appetite".
The next major data point for Australia is fourth-quarter CPI on January 31.
Westpac earlier this week renewed its bearish forecast for the Australian dollar; it sees the currency at US72?? by year end, reflecting in part an expected shift in rate differentials among Australian and US government bond yields.
Helping the Aussie somewhat, S&P affirmed its AAA rating on Australia's debt though it also said that Australia's budget position is still too weak to justify a sudden relaxation in spending restraint or tax cuts.
"We could lower our ratings if within the next year or so we come to the view that the government's fiscal consolidation measures are insufficient to achieve [the surplus] target," the ratings firm said.
Weaker currency 'a hidden tax'
The Aussie's recent strength also is being attributed to buoyant commodities. Brent oil topped $US71 a barrel for the first time overnight, gold extended its 10 per cent surge from mid-December to reach its highest since August. Both oil and gold settled lower in the wake of Trump's dollar comments. Zinc, nickel and lead rallied to multi-year highs in London.
"Commodity prices could have further to go because there is a lot of momentum and optimism, as we can see in the futures market," Capital Economics senior commodities economist Caroline Bain said.
"But over the course of this year we will see this optimism fading and we think the global economy and China will slow down, leading to lower prices," Ms Bain added.
"I thought my comment on the dollar was actually quite clear," Mr Mnuchin said. "It was balanced and consistent with what I said before, which is we are not concerned with where the dollar is in the short term."
Mr Draghi referenced the promise of IMF member countries to "refrain from competitive devaluations" of currencies and to avoid targeting "our exchange rates for competitive purposes". He spoke to reporters after the ECB's latest policy meeting.
"The dollar is of all currencies a floating currency and one where value is determined by markets and geared by the fundamentals of US policy," Ms Lagarde told Bloomberg.
In a Linkedin post, Mr Dalio said a weaker currency "is a hidden tax on people who are holding dollar-denominated assets".
with Bloomberg, Reuters