By Jessica Sier
The Australian dollar tumbled about 1 per cent overnight, reaching a two-month low, after the US dollar index extended its winning streak to touch a 14-year high as investors almost fully price in a US rate hike in December.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.3 per cent, building on a 2.8 per cent surge last week.
The Aussie sank below US75¢ and was fetching US74.81¢ on Thursday morning, with traders citing lower commodity prices and softer wage data.
Ninety-four per cent of market participants expect the US Federal Reserve to lift rates in December and, according to Bloomberg, the chance of several rate increases next year has been picking up.
"Even prior to [US president-elect Donald] 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, and fiscal spending implies the government will issue more debt, 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 after US Federal Reserve Bank of St Louis president James Bullard said on Wednesday that he was still leaning towards backing an interest-rate rise increase in December.
"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 at an event hosted by UBS Group in London.
However, some 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 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.
"The biggest loser of the day was Australian dollar, which lost approximately 1 per cent of its value versus the US dollar. Softer data and lower commodity prices were the catalysts for the move," BK Asset Management FX strategy managing director Kathy Lien said.
"Australia's wage cost index rose 0.4 per cent against a forecast of 0.5 per cent and as a result, the currency pair dropped below the 200-day simple moving average, hitting a two-month low in the process."