The Australian dollar has dropped to a one-month low as the US dollar rallied on the back of strong economic data and investors waited for Thursday's capital expenditure numbers.
The dollar dropped to US77.29¢ on Wednesday morning, down 1.1 per cent and at the lowest rate it has traded at since late April. During the local session the currency recovered from its lows and was buying US77.63¢ in late trade, down about US4¢ from recent highs in mid-May.
The fall in value was largely due to a surge by the US dollar on the first full trading day of the week for US and European markets.
The greenback jumped after the release of stronger than expected economic data, which came on the back of US Federal Reserve chairwoman Janet Yellen's speech last week when she confirmed they would raise interest rates if the US economic recovery continued.
"The market took her words to mean that the Fed is committed to a path towards normalisation and that a hike in the Fed funds rate is now just a matter of when rather than a question of if," BK Asset Management's managing director of foreign exchange strategy Boris Schlossberg wrote in a note.
The US data included a 6.8 per cent jump in new home sales, ahead of expectations, as well as a uptick in consumer confidence to 95.43, up from 94.3 in April.
National Australia Bank senior currency specialist Emma Lawson said the positive data opened the door for a US interest rate hike in 2015.
"Finally. They [recent US economic indicators] weren't extraordinary but good enough for a return to considering higher US interest rates this year. Durable goods orders, house prices, consumer confidence were all better than expected and there were some decent upward revisions to prior data," she said.
The jump was also accompanied by a rally in US bonds and a 1 per cent drop on Wall Street, which senior currency strategist at the Commonwealth Bank Elias Haddad described as a "bout of risk aversion".
"Despite iron ore prices being up slightly, the [Australian] dollar fell, which shows it is not an Australian-focused fall for the dollar," Mr Haddad said.
"There is scope here for the Australian dollar to stay under short-term downside pressure if the US rally continues, especially if tomorrow's data is lacklustre."
In local economic data on Wednesday, first-quarter construction work fell by 2.4 per cent, coming in well below market expectations of a 1.4 per cent drop.
A surprisingly large 3.3 per cent rise in building work done on homes and non-residential buildings was more than offset by a 7.3 per cent slump in engineering work, mainly due to the end of the mining investment boom.
Despite the fall, the data had little impact on the currency, which Citi economist Josh Williamson said was due to the RBA having flagged the likelihood of weaker than expected mining investment in its May statement on monetary policy.
"Thursday's second estimate of capex expectations for 2015-16 will be more important," Mir Williamson said. "It provides the first chance to assess the investment outlook since key commodity prices weakened.''
Australian investors are bracing for the release of first-quarter capital expenditure data due on Thursday, with many hoping it will show the first significant pick up in non-mining sector expenditure since the resources boom began to slow.
"If the data is disappointing or under expectations, that could further weigh on the dollar," Mr Haddad said. "But if it is encouraging, that could support the Aussie, particularly against the euro and the New Zealand dollar.''
The combination of a rallying US dollar and underwhelming capital expenditure data on Thursday could drive the dollar closer to the Reserve Bank of Australia's preference for the dollar's trading range of US75¢.
