SYDNEY/TOKYO: The US dollar traded at 11-month highs against a basket of major currencies early on Thursday, having been given a second wind after minutes of the Federal Reserve's July meeting sounded slightly hawkish.
The Australian dollar extended its losses after a preliminary survey of China's manufacturing sector showed growth slowing to a three-month low.
The dollar index, still basking in the afterglow of Tuesday's upbeat US housing data, climbed as far as 82.358, reaching a high not seen since early September.
It has broken clear of the 81.188/81.716 range held for much of this month.
The minutes showed policymakers debated on whether interest rates should be raised earlier given a surprisingly strong jobs market recovery.
Most officials, however, wanted further evidence before changing their view on when rates should be lifted. In any case, it was enough to send US Treasury yields higher with the two-year note hitting a two-week high just shy of 0.5 percent.
That in turn helped underpin the greenback, which rose to its highest in over four months against the yen at 103.965 , not far from the April peak of 104.13.
A break there could see the market aim for the 2014 high of 105.45 set in January. "The momentum is there. The market is experiencing a bit of an euphoria, putting logic aside and now aiming for 104 yen. I hesitate to use the term but it's 'risk-on'," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. But Murata said the dollar/yen rally appeared overdone, noting that the Fed minutes did not trigger a sharp selloff in Treasuries and US equities still made gains. "It appears the bond and equity markets do not share the view that a rate hike might be brought forward," he said.
Other market watchers concurred.
Indeed, while discussions around the table at the Fed meeting is one thing, the final opinion of the Fed Chair and her voting members is quite another.
"The "significant underutilization of labor resources" view of the labour market carries the day as far as monetary policy is concerned," said David de Garis, senior economist at National Australia Bank, referring to Janet Yellen's concerns about jobs.
"The market now waits for Dr Yellen's address to the Kansas City Fed Jackson Hole conference Friday," he added. Other currencies also ceded ground against the greenback, notably the euro which pierced through the Nov. 7 trough of $1.3295 to reach an 11-month low at $1.3242.
The New Zealand dollar, already out of favour after the central bank last month paused its tightening cycle, skidded to a 5-1/2 month low of $0.8347.
While Fed officials may be debating about the merits of an earlier tightening, two policymakers at the Bank of England (BOE) actually voted for a rate hike this month.
The unexpected move revived speculation the BOE might yet raise interest rates this year.
That saw sterling hold up fairly well against the broadly firmer greenback and actually rise on the euro, which plumbed a one-week low at 79.68 pence.
Meanwhile, the soft China PMI survey put a further dent on the Australian dollar.
Australia is sensitive to news out of China, its key export market.
The Aussie, already weakened by the bullish US dollar, fell as low as $0.9235 to be last at $0.9245 and showed a 0.5 percent decline on the day.
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