The dollar surged against a number of major currencies on Thursday after the US Federal Reserve played down any threats to this year's planned hikes in interest rates, solidifying expectations of another move in June.
The euro drew some support from centre-left candidate Emmanuel Macron's performance in a TV debate ahead of Sunday's French presidential election run-off, cooling gains for the dollar to less than half a cent at $1.0876.
But the rise in 10-year US government bond yields back above 2.32 per cent helped the dollar to a six-week high of close to 113 yen and 4-month highs against the Aussie dollar.
The weakness of the Aussie - typically a pro-growth play - at a time when the mood on stock markets is upbeat, stems from sharp falls in the prices of iron ore and other commodities that suggest a rise in concern about the Chinese economy.
“Something is not right in the commodities space and it has not been right for two weeks,” said Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London.
“The dollar is strong after the Fed but the euro cannot go down at the moment. With commodity prices falling, that means the strength plays out in the commodity FX space.”
After the greenback rose across the board after the Fed's decision on Wednesday, the dollar index was up another 0.2 per cent on the day on Thursday, hitting a two-week high of 99.462.
It was marginally higher at 112.80 yen but more than a third of a percent stronger at $0.7394 per Aussie dollar and 0.2 per cent higher against the New Zealand dollar.
Traders pointed to comments by JP Morgan chief Jamie Dimon at a conference in Los Angeles. He was reported as reassuring investors that the bank would have a bad day but would still make money if China kicked out foreign investors.
“Recent pressure on world commodity prices culminated in some precipitous moves overnight ... and from a technical perspective at least, the signs are ominous,” said Neil Mellor, senior currency strategist with Bank of New York Mellon in London.
Such nerves over China come at a time when growth in Europe seems to be solidifying and the Fed has finally begun to deliver on long-disappointed market expectations of a cycle of interest rate hikes.
Keeping rates unchanged on Wednesday, the Fed played down recent signs of a cooling of US activity and said consumer spending continued to be solid, business investment had firmed, and inflation has been “running close” to its target.
That kept the door “wide open” to a June rate hike, said Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore.
“The risk was that they could have perhaps sounded a little bit more dovish on the back of the recent data and that certainly wasn't the case,” he said.