The Australian dollar pulled away from recent one-year highs on Monday, dragged down by bout of short covering in US dollar positions and by lower commodity prices and stock markets.
At the local close, the dollar was trading at fell to around $US0.8571, from $US0.8632 late on Friday, and down over 1 per cent from a recent one-year high of $US0.8677 struck late last week.
The US dollar pared some of its recent sharp losses in Asian trade as a broad based sell-off paused. The ICE dollar index, which hit a one-year low last week, is still down around 1.5 per cent so far this month as investors shifted funds to more riskier assets and higher-yielding currencies.
"The currency market is tired, as in the US dollar is oversold, except against the yen where it has further to run," said Clifford Bennett, chief economist at Kinetic Securities.
"The next day or two is likely to see a significant short to near term top in the euro and the Aussie, and we should position ourselves for that risk."
Latest data from the Commodity Futures Trading Commission showed speculators increasing long positions on the Aussie dollar to a net 48,384 in the week to September 8, from 41,936 a week earlier. The value of the US dollar's net short position edged up to $US17.9 billion from $US12.31 billion the prior week.
A fall in metals and crude oil prices also weighed on the Australian dollar. US crude for October delivery fell to around $US68.13 while copper was lower in Asian trade. Australia is a big exporter of industrial raw materials.
Looking ahead, investors will focus on the minutes of the Reserve Bank of Australia's (RBA) September policy meeting which will be released on Tuesday.
Investors have recently pared bets of a rate hike in Australia in coming months after surprisingly soft retail sales data and a weak jobs report. Overnight index swaps were pricing in no chance of a rate rise in October.
But over the next 12 months, investors are betting on Australian rates to rise by 158 basis points from the current 3 per cent cash rate.
"It will come down to nuances in the minutes tomorrow for any market impact, though we expect nothing that will derail expectation that the RBA is laying the groundwork for a shift to a formal tightening bias at the October meeting," said Patrick Bennett, Asia forex and rates strategist at SGIB.
"We still believe November is the earliest plausible timing for a rate hike."
The Aussie eased to 77.68 yen from Friday's 78.71. Earlier in the day, the US dollar fell to a seven-month low on the yen. Traders said the latest drop in US Treasury yields had surprised many and forced Japanese investors in cross-currency positions to sell dollars for yen.
With three-month US LIBOR rates falling further below Japanese rates, the US dollar was also fast becoming the preferred funding currency for carry trades, analysts said.
Aussie bond futures were higher, taking cue from US Treasuries which ended last week on a strong note as 10-year yields dropped to 3.35 per cent, from a peak of 3.53 per cent.
Aussie three-year bond futures were up 0.035 points at 95.345, while the 10-year bond contract edged 0.005 points higher to 94.74.
Reuters