The Australian dollar extended its retreat overnight, hovering near US78??, in the wake of a poor retail sales report.
The Aussie was 0.9 per cent lower at US77.92?? at about 5:45am AEDT, having fallen as low as US77.89c The currency has now pared its year-to-date advance against the greenback to 8.4 per cent. The $A has fallen 3.7 per cent against its US counterpart since touching US81.02?? on September 21.
Faraday Research analyst Matt Simpson said he was keeping a watch on whether the local currency would breach this week's low of US77.83?? because that "could prove to be pivotal".
"US yields and stock markets continue to outperform AU counterparts on a relative basis which provides headwinds to any AUD rally," Mr Simpson said. "That AU commodities are also feeling pressured suggests this week's rebound could just be part of a correction against the fall from 0.8124. In which case, a break of 0.7783 assumes further downside risk for AUD unless the greenback, US treasuries and their stock markets soften."
While the unexpected drop in retail sales in August, the biggest two-month decline in seven years, triggered the currency's most recent retreat, the Aussie also was pressured by data pointing to the strength of the US economy, firmer prospects of more US interest rate hikes and rallying US equities.
The US dollar gained as data pointed to solid US growth, though the dollar index held under seven-week highs due to caution over how much Friday's employment report for September will be impacted by recent hurricanes.
The US trade deficit fell in August as exports of goods and services rose to the highest level in more than 2-1/2 years, while the number of Americans filing for unemployment benefits fell more than expected last week.
New orders for US-made goods rose in August and orders for core capital goods were stronger than previously reported, suggesting robust business spending could help offset some of the economic drag of Hurricanes Harvey and Irma.
The dollar index against a basket of six major currencies rose as high as 93.851, but held below the seven-week high of 93.92 reached on Tuesday.
Improving data along with the prospect of US tax cuts and the likelihood that the Federal Reserve will raise interest rates in December have boosted the US currency in recent weeks.
Interest rate futures traders are now pricing in an 84 per cent likelihood of a December rate hike, up from 78 per cent a week ago, according to the CME Group's FedWatch Tool.
Overnight two more Fed policymakers reinforced a hawkish tilt toward rates.
"Favourable employment numbers, combined with the findings on inflation and the steady pace of growth, are all behind my confidence that rates will need to rise to their new normal levels," said Federal Reserve Bank of San Francisco president John Williams.
Separately, Philadelphia Fed president Patrick Harker separately told CNBC television, as he previously said, that he's "penciled in" a move in December and three hikes next year.
The Australian dollar also is reflecting recent weakness in commodity prices.
"The prices of most metals fell in September as a rising US dollar and upward revisions to expectations of US interest rate hikes weighed on investor sentiment," Capital Economics said in an overnight report.
"Signs of somewhat softer economic activity in China also raised concerns in the more industrial metals markets. Indeed, we suspect that prices have further to fall, as China's economy slows in the fourth quarter in response to earlier policy tightening."
Capital Economics sees much lower prices in copper, aluminium and iron ore, among others, by year end. Copper is forecast to fall by 10.4 per cent to $US5800 a tonne; aluminium is seen shedding 11.4 per cent to $US1900 a tonne; and, iron ore is seen tumbling 19.4 per cent to $US50 a tonne.