The Aussie dollar has been whacked again

  • The Australian dollar fell heavily on Wednesday, weighed down by a weak Australian inflation report and rampant buying in the US dollar.

  • The US dollar index hit the highest level since June 2017, helped by weakness in the euro and strong labour market data.

  • Australia will receive trade data for September today. Being the start of the month, there'll also be a deluge of manufacturing PMI reports released.

The Australian dollar fell heavily on Wednesday, weighed down by a weak Australian inflation report and rampant buying in the US dollar.

Here's the scoreboard at 8am in Sydney on Thursday.

AUD/USD 0.7071 , -0.0034 , -0.48%
AUD/JPY 79.89 , -0.45 , -0.56%
AUD/CNH 4.9310 , -0.0202 , -0.41%
AUD/EUR 0.6249 , -0.0014 , -0.22%
AUD/GBP 0.5538 , -0.0053 , -0.95%
AUD/NZD 1.0845 , 0.0006 , 0.06%
AUD/CAD 0.9303 , -0.0012 , -0.13%

After beginning the session just above 71 cents, the AUD/USD weakened following the release of a soft September quarter consumer price inflation (CPI) report with both headline and underlying CPI undershooting market expectations, all but ensuring policy settings at the RBA will be left steady for the foreseeable future.

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Losses were gradually trimmed over the course of European trade, helped by strong gains in stocks that were potentially helped by bargain hunting and month-end window dressing.

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However, after briefly lifting back above .7100, the AUD was subsequently slammed lower as North American traders rolled in, falling to as low as .7068 before recovering into the close.

The catalyst for the selloff was the release of further robust US labour market data, something that acted to propel the US dollar to fresh cyclical highs.

"[The] US produced yet another robust batch of data," said Westpac's strategy team.

"The Employment Cost Index for Q3 rose a higher than expected 0.8% with wages and salaries accounting for the bulk of the upside surprise rather than volatile benefits. Private sector wages and salaries rose 3.1% in the year -- the fastest pace since 2008 and up from 2.9% -- continuing a steady accelerating trend amid a tightening US labour market.

"Ahead of this Friday’s non-farm payrolls, the ADP Research Institute said private sector payrolls grew a solid 227,000 in October, topping the median estimate for an increase of 187,000."

The strong data helped to push the US dollar index, or DXY, to the highest level since June 2017.

Further helping the DXY's advance, the euro -- the largest component in the index -- weakened to the lowest level against the greenback since June 2017 despite the release of an in-line inflation reading for October.

The strength in the US dollar also saw the offshore traded yuan, or CNH, fall to the weakest level since January 2016, another factor contributing to the Aussie's lacklustre performance during the session.

The weakness in the yuan came despite moves from Chinese policymakers to tighten offshore yuan liquidity, likely making it more expensive for any investor contemplating shorting the yuan in anticipation of further weakness.

Of all the major crosses, the Aussie fell the hardest against the British pound as positive headlines in relation to Brexit and short-covering ahead of tonight's Bank of England monetary policy decision helped fuel gains in the GBP.

Turning to the session ahead, it will be a busy one being the start of the month with major economic releases scheduled both at home and abroad.

Domestically, traders will receive the latest Ai Group manufacturing PMI, CoreLogic's monthly Home Value Index, import and export prices along with trade figures for September.

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Of all releases, the monthly trade report carries the greatest potential to generate some volatility in the Aussie. A surplus of $1.7 billion is expected, up from $1.6 billion in August. It will arrive at 11.30am AEDT.

Across the Asian region, the main highlights will be trade and inflation data from South Korea along with a swathe of manufacturing PMI reports, including from China, Japan and India.

Later in the session, markets will also receive UK house prices and manufacturing PMI along with jobless claims, labour costs, construction spending, motor vehicle sales and manufacturing PMI from the United States.

As mentioned earlier, the Bank of England will also announce its latest interest rate decision. No change in settings is expected. The bank's quarterly inflation report will also be released.

"Core inflation is contained while uncertainty around Brexit and activity linger as a concern," Westpac says.