Sharemarket drifts lower, Australian dollar jumps

The dollar has pushed past the US81 cent mark for the first time since May 2015, climbing one US cent in under a day.

The ASX drifted down in early trade.

A soaring Australian dollar has pushed through the 81 US cent mark for the first time since January 2015, climbing more than one US cent in less than a day. The local dollar gained fresh momentum on Friday when the Australian Bureau of Statistics said the number of home loan approvals rose 2.9 per cent in July, adding to the accumulation of recent positive economic data, AxiTrader chief market strategist Greg McKenna said.

“From the gloom of March and April when the dollar was forecast at 65 US cents - commodities looked terrible, metals looked terrible - all that’s turned around,” Mr McKenna said.

While still volatile, Australia commodity exports including iron ore, coal and copper have all tracked higher in recent months, while the bond spread between Australia and the US has also seen a trend reversal.

“If you rack up all the normal things you tee into a fair value model, they’ve all been moving in the Aussie dollar’s direction and then you get this USD collapse,” Mr McKenna said.

The greenback was hit overnight after European Central Bank president Mario Draghi’s failure to detail the bank’s timeline for tapering its bond-purchasing program.

The US dollar index ebbed to its lowest levels in two and a half years on the news, as one side of the Atlantic hosts a resurgent euro and the other faces soft inflation, a hesitant US Federal Reserve, a White House unable to exact its pro-business economic agenda and the imminent landfall of category five Hurricane Irma.

“The US dollar is on the precipice of a capitulation, it could concede a fair chunk of the 2014 rally and if it does you could get the euro at 126, 128 US cents - then the Aussie is going to be well north of 85 US cents,” Mr McKenna said.

At 4.08pm (AEST), the Australian dollar was worth 81.14 US cents, up from 79.85 US cents on Thursday.

The dollar’s rise came as the share market drifted lower.

At midday (AEST) the benchmark S & P/ASX200 index was down 0.24 per cent at 5,676.1 points, pulled back by weakness in the big banks and energy stocks.

The broader All Ordinaries index was down 11.3 points, or 0.2 per cent, at 5,742.5 points.

Overnight, US markets ended mainly flat.

Investors are awaiting further reports of the impact of Hurricane Irma and the possibility of another North Korean missile test over the weekend. Hurricane Irma is bearing down on Florida, fast on the heels of Hurricane Harvey which caused devastation in Texas.

On the local bourse, among the big banks, Commonwealth Bank was 0.6 per cent lower at $73.56 cents.

Australia’s financial sector regulator has appointed three panel members to inquire into the Commonwealth Bank’s governance, culture and accountability, following allegations the bank breached money-laundering and terrorism-financing laws.

Energy shares eased despite Brent crude prices lifting overnight. Woodside Petroleum fell 1.1 per cent to $28.82, and Santos dropped 1.2 per cent to $3.855.

Among the major miners, BHP Billiton was off 0.04 per cent at $27.32, Rio Tinto gained 0.4 per cent to $69.00, and Fortescue Metals eased 1.2 per cent to $5.91. Gold miner Newcrest was up 0.2 per cent at $23.34 as gold prices lifted to a one-year high.

AAP