The Australian dollar lost ground overnight as the US dollar found renewed strength with four separate US Federal Reserve officials indicating a rate increase is imminent.

Overnight the Australian dollar stumbled to fetch US71.32¢ at 9:27am AEST from its high in the upper US71¢ range on Monday. It fell just short of US72¢, touching US71.97¢. The currency slipped after midnight to the lower range of the handle, .

The overnight slip came on the firmer $US, which rallied after US Treasury yields spiked in response to four Federal Reserve officials who separately said US economy was strong enough to withstand a rate hike this year.

Federal Reserve Bank of Atlanta president Dennis Lockhart, a characteristically dovish Fed official, said at a speech he put the decision of the Fed last week to keep rates at near zero on “prudent risk management around recent and current market volatility”.

Mr Lockhart said while that volatility raised risks to the US economic and inflation outlook, he said “I am confident the much-used phrase ‘later this year’ is still operative”.

His comments echoed those of other Fed officials over the past days since the Fed surprised markets late last week with keeping rates on hold and striking a dovish tone in the explanation of its decision, citing worries about the global economy as a reason for inaction.

Commonwealth Bank of Australia chief currency strategist Richard Grace said the Australian dollar was now down 1 per cent for the week and expected further downside.

“The failure of Australian dollar to lift in overnight trade despite optimism on Chinese, European and US stockmarkets indicates the rallies in AUD don’t have much strength and further downside in AUD is likely,” he said.

Elsewhere, the Australian dollar was slightly stronger against the euro ahead of testimony on Wednesday by European Central Bank president Mario Draghi. On Tuesday morning the Aussie was buying 63.77 euro cents. The Aussie was weaker against the British pound, buying 45.99 pence.

With no major local data releases this week, foreign exchange traders focus will be on China’s September Caixin manufacturing purchasing manager’s index to gauge demand for Australian commodities, Mr Grace said.

“Given the weakness in the broader Chinese economy, the risks are tilted to the PMI disappointing expectations, which should weigh on AUD,” he said.


by Vanessa Desloires