The Australian dollar tumbled to a two-month low on Thursday on weak local economic data and after the US dollar extended its winning streak to hit a 14-year high against a basket of currencies.
The Aussie sank below US75¢ for the first time since September and was fetching US74.75¢ in late trade, with traders citing lower commodity prices and softer wages and employment data as factors weighing on the currency.
![For the first time in 15 years, higher rates in the US than in Australia are a "realistic" prospect in 2017.](/web/20170104093821im_/http://www.watoday.com.au/content/dam/images/g/s/g/x/e/s/image.related.articleLeadwide.620x349.gsr3tw.png/1483078665086.jpg)
Much of the dollar's recent weakness is thanks to a strengthening US dollar.
The greenback has surged in the past week, tracking US Treasury yields higher on the expectation that increased government spending under President-elect Donald Trump will trigger higher inflation and perhaps force the Federal Reserve to tighten monetary policy more quickly than expected.
The Bloomberg US dollar index, a measure of the greenback's value against a basket of currencies, hit 100.57, its highest since April 2003 in early trade on Thursday before easing to 100.3 through Asian trade.
Markets pricing in US rate hike in December
US interest rate futures are pricing in a 94 per cent chance of a rate hike of 25 basis points at the next Fed meeting, scheduled for December, according to Bloomberg.
"Even prior to Trump's election win, the focus was shifting from monetary policy towards fiscal," UBS senior economist Scott Haslam said.
The market has taken the view that the US government is likely to proceed with a pro-growth infrastructure program, which would place upward pressure on interest rates.
That, combined with expectations of US tax cuts which will increase earnings potential for US companies, has investors interested in the greenback as a source of continued strength.
The US dollar saw further appreciation despite US Federal Reserve Bank of St Louis president James Bullard saying on Wednesday night that he was still leaning towards a "one-and-done" scenario for rates.
"A single policy rate increase, possibly in December, may be sufficient to move monetary policy to a neutral setting," Mr Bullard said in a speech in London.
However, some analysts caution the US dollar is ripe for a let-down should the proposed fiscal spending fail to eventuate.
Investors bought the US dollar and sold the Aussie on Wednesday night after the Australian Bureau of Statistics' wage price index rose 0.4 per cent in the September quarter – missing market expectations of a 0.5 per cent rise – and 1.9 per cent on a yearly basis.
There was also some selling on Thursday in reaction to the October employment numbers, as fewer new jobs than expected were created and the participation rate failed to rise, even as the unemployment rate held steady at 5.6 per cent.