The dollar struggled to advance on Thursday even though Federal Reserve policymakers reiterated their commitment last month to fighting inflation, while the Aussie rallied after China eased its restrictions on imports of Australian coal.
Minutes of the Fed's December policy meeting released overnight showed that while officials agreed that the central bank should slow the pace of its aggressive interest rate increases, they remained focused on curbing inflation, and were worried about any "misperception" in financial markets that their commitment was flagging.
Minneapolis Fed President Neel Kashkari also said on Wednesday that he sees the Fed's target interest rate peaking at 5.4%, higher than current market expectations of just under 5%. FEDWATCH
Yet, that failed to give a boost to the U.S. currency, which slid 1.4% against the Canadian dollar CAD=D3 overnight.
Sterling GBP=D3 was last steady at $1.2062, after rising 0.76% against the dollar in the previous session, while the euro EUR=EBS edged 0.19% higher to $1.0624, following a more than 0.5% overnight gain.
"From the Fed's point of view, it's very, very premature to be thinking about rate cuts in 2023, which is obviously what the market still expects," said Ray Attrill, head of FX strategy at National Australia Bank (NAB).
Economic data also released on Wednesday revealed that U.S. job openings fell less than expected in November, though a survey from the Institute for Supply Management (ISM) showed that U.S. manufacturing activity contracted again in December.
"Heading into Friday's payrolls, the message is still that the labour market remains in pretty rude health," said Attrill.
Against a basket of currencies, the U.S. dollar index =USD fell 0.14% to 104.06, after slipping 0.5% on Wednesday.
The Australian dollar AUD=D3 rallied 1.7% overnight on news that China's state planner has allowed three central government-backed utilities and its top steelmaker to resume coal imports from Australia, marking the first such move since Beijing imposed an unofficial ban on coal trade with Canberra in 2020.
The Aussie AUD=D3 was last steady at $0.6835, while the kiwi NZD=D3 rose 0.11% to $0.6298, after gaining 0.7% in the previous session.
"The Aussie dollar has obviously benefitted from the coal story," said NAB's Attrill, adding that most other commodity currencies were supported.
The Japanese yen JPY=EBS climbed 0.5% to 131.97 per dollar on Thursday, reversing its 1.2% overnight slide, as traders bet that the Bank of Japan may soon fully abandon its controversial yield curve control.
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