By Yolanda Redrup
The Australian dollar traded erratically on Wednesday, pushed down to US82.64¢ by lower-than-expected China inflation data, before hitting US83.17¢ in the afternoon.
ANZ senior foreign exchange strategist Daniel Been said the US Federal Reserve meeting next week was creating some nervousness in the market.
"Anyone who can tell you about the price action of the dollar on Wednesday is just making things up," he said.
"Inflation in China was not helpful and neither was the volatility in the Chinese stock market and currency market."
China's inflation figure hit a new 12-month low of 1.4 per cent year-on-year, down on the previous month's 1.6 per cent rate.
The dollar hovered around US82.92¢ for most of the day, after a wild ride in Tuesday night trade, which saw the dollar reach a high of US83.73¢, as the greenback feel against most major currencies.
But by early Wednesday morning the local unit shifted back to US83¢.
The dollar was rattled in early trade by the release of weak consumer confidence figures, which showed sentiment falling to a three year low. Confidence fell by 5.7 per cent in December from 96.6 to 91.1.
Westpac Banking Corp chief economist Bill Evans said the result was "disturbing".
"The index is now at its lowest level since August 2011 when it briefly fell below 90. Prior to that you have to go all the way back to May 2009 to see a period when the index printed consistently below today's level," he said.
Also on Wednesday, St.George Bank changed its interest rate prediction and said it no longer expected the Reserve Bank of Australia to raise rates in 2015.
"This view implies a weaker profile for the AUD next year. We now expect the Australian dollar to end next year on US75¢," chief economist Besa Deda said in a note.
Mr Been said market fundamentals pointed to the dollar falling even lower.
"Confidence numbers have thrown a spanner in the view there was any sort of value in the prospect of a recovery," he said
"The employment numbers out tomorrow will be watched closely . . . as will the Reserve Bank of New Zealand meeting tomorrow morning."
ANZ's Mr Been said if the RBNZ was dovish this would help the Australian dollar, but over the past week the dollar had been weak.
OANDA Asia Pacific senior trader Stephen Innes said it had been a frantic 24 hours for the dollar.
"Investors have been profit-taking and reducing heavily weighted long USD positions across the board," he said.
"The ebb-and-flow of oil prices is pushing and pulling at commodity sensitive currencies like the Aussie."
Mr Innes said the dollar was facing another slide against the greenback.
"Tony Abbott's government's approval ratings have sunk to new lows, and key commodity sectors are trading heavy, while domestic banks jump on the rate cut bandwagon," he said.
"Weaker domestic data is pointing to a negative Aussie climate."