Currency market volatility returned as the Federal Reserve’s hawkish pivot put a rocket under the greenback and the Australian dollar tumbled, only to recover slightly after an exceptional jobs report on Thursday.

The local currency plummeted 1 per cent to as low as US75.98¢ while the US dollar surged 0.8 per cent in a move that went against the expectations many strategists had pencilled in for this year.

The comments from the Fed “had a profound impact on currency markets,” said NAB’s head of FX strategy, Ray Attrill. “We’ve had our forecasts at US80¢ for the end of the [June] quarter. That’s now being seriously challenged.”

A sell-off in US 10-year bonds pushed the yield up 8 basis points to 1.58 per cent while inflation expectations, as measured by breakeven rates, dropped, creating a favourable setting for the US currency.

“You had this background where many traders were short the US dollar and long the euro, and what we saw last night was the Fed conceding that economic dynamics are good enough that tapering discussions have been given the green light,” said ANZ FX strategist John Bromhead.

“The response to that positioning backdrop was a rise in US nominal yields and breakeven inflation rates coming off, so it looks like there’s near-term persistence with the US dollar.”

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