The Australian dollar has plunged below the US76¢ mark amid a resurgence in its US counterpart as expectations the Federal Reserve will lift interest rates later this month continues to ratchet higher.
Governor Lael Brainard, seen as among the most dovish policymakers, has added her voice to the debate, saying the economy "appears" to be at an inflection point.
"We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time," Brainard said in the text of a speech. "Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path."
The spot US dollar index reached its highest in almost two months, rising 0.4 per cent to 102.18 in late trade in New York on Thursday (7.25am Friday AEDT).
Commodity currencies plunged. The Aussie shed 1.4 per cent to US75.68¢, falling as low as US75.58¢ at one point. The Canadian dollar shed 0.5 per cent to US74.65¢ and the Kiwi dropped 1.1 per cent to US70.63¢. The Aussie was trading at 1.0717 versus the NZ dollar.
The US dollar also strengthened against the Japanese yen, reaching 114.46, earlier touching 114.59, as safe haven bets evaporated.
Brainard's comment, combined with "hawkish" comments from other policymakers—William Dudley and John Williams—suggests "the die seems to be cast", said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Group in New York.
Mr Wizman said he will be watching closely what other policymakers scheduled to speak today—Loretta Mester—and tomorrow—Janet Yellen, Stanley Fischer, Jerome Powell and Charles Evans—have to say, with a particular focus on Yellen.
"We attribute the Fed's concerted tone of hawkishness (relative to the more ambiguous February 1 minutes) to new signs that the February economy was indeed good (combined with the FOMC pledge to be data-dependent)," Mr Wizman wrote in an overnight note. "We also attribute the 'pivot' to the rise in prices of risk assets (e.g., stocks) which must be giving the Fed some reason to believe that it is falling behind the curve, given its responsibility for financial stability, as well as its 'dual mandate'."
The CME Group's FedWatch tool puts the probability of a rate hike this month at 75 per cent, up from 66 per cent the previous session.
"Not only is March now on the table, in many people's eyes it's the base case scenario which is a massive change from even a week ago," said Craig Erlam, senior market analyst at OANDA."
In the absence of much economic data today–jobless claims being the only notable release–attention is likely to remain on what the Fed is doing and what we expect it to do in two weeks," Mr Erlam wrote. "It will be interesting if the dollar builds on its gains ahead of all the Fed speeches tomorrow, which could continue to weigh on commodities and the related currencies such as the AUD, CAD and NZD."
In the week ending February 25, the advance figure for seasonally adjusted initial claims was 223,000, a decrease of 19,000 from the previous week's revised level, the US Labor Department reported overnight. This is the lowest level for initial claims since March 31, 1973 when it was 222,000.
The spot price of iron ore rose 1.2 per cent to $US92.36 a tonne at its latest fix, according to Metal Bulletin. Base metals trading in London fell, after a leap higher the previous session on positive China economic data. Both gold and oil also fell overnight. Spot gold fell 1.2 per cent; brent shed 2.3 per cent.
