Currency investors will need to get used to another risk factor in the highly volatile foreign exchange markets: the Trump jawbone.
The Australian dollar hit a two-month high against the US dollar on Wednesday after Donald Trump roiled currency markets that had been anticipating US dollar-supportive policies from the US President-elect by saying the US dollar was too strong.
The sell-off – which traders linked to an interview the President-elect gave to the Wall Street Journal – erased some of greenback's recent gains. The US dollar has risen markedly since Mr Trump's election and is still 7 per cent above the Federal Reserve's four-decade trade-weighted historical average.
The US Dollar Index, which measures the US dollar against a basket of currencies, hit a high of 103.29 in late December, but was at 101.2 on Tuesday and 100.3 early Wednesday.
The Australian dollar on Wednesday bought US75¢, up from US72¢ on January 2.
Virtually every economic policy that has been proposed by Mr Trump is positive for the US dollar, said Amplifying Global FX Capital's Greg Gibbs in a briefing note.
"However, Mr Trump's transition has prioritised less growth-supportive policies, highlighted divisions with Republicans in Congress over Russia, China, and tax policies, been distracted by a range of side issues, and has failed to generate more widespread public support."
This has fed uncertainty over the Trump presidency, undermining confidence in the US dollar.
Some extracts from the WSJ interview had already run on Friday. But it took until traders returned from a long holiday weekend and weighed up similar comments by Trump adviser Anthony Scaramucci at Davos, for impact to fully flow through to the currency markets. By Wednesday, the dollar was down against all ten major currencies, including the Australian dollar.
As well as saying that "our companies can't compete with [China] now because our currency is strong and it's killing us", Mr Trump signalled his lacklustre support for a border tax.
The proposed policy, popular with House Republicans, would allow American exporters to deduct their costs of production from their taxable income, allowing them to lower the cost of exported goods. Imports to the US, meanwhile, would pay a tariff on entry.
"It's a complicated and weird idea," says Westpac currency strategist Sean Callow of the Republican export-promoting tax plan, which, it has been argued, would lead to a higher US dollar. "A stronger dollar is a part of the Border Tax, which makes Trump's dismissal of it noteworthy," Mr Callow said.
Mr Trump's comments – dubbed by analysts 'open mouth operations' in reference to the 'open market operations' central banks use to lock in interest rates – have moved markets before.
Earlier this week, the incoming US president slammed German carmaker BMW for moving some of its production to Mexico. Those comments came after he used his first press conference in some months to criticise American drug companies for not making drugs locally.
Both BMW and the drug firms saw some share price weakness after the comments from Mr Trump.
American presidents usually avoid making comments that may move the markets, but few expect Mr Trump to moderate his style once he is inaugurated on Friday.
Mr Callow said that Trump-induced volatility was unlikely to significantly hurt the US dollar, which has fundamental support from market expectations of at least two US cash rate hikes this year.
"The vast majority of central banks are trying to keep rates steady at very low yields. In the case of the European Central bank and the Bank of Japan, they're printing money – quantitative easing continues in Tokyo and Frankfurt. That limits the downside to the US dollar."