The Australian dollar surged more than 1 per cent, before easing slightly, after US officials signalled their openness to a weaker greenback.
The Aussie rose as high as US80.83c at about 2.30am AEDT. It was up 0.8 per cent at US80.64c at 3.45am AEDT, according to Bloomberg data. The $A last topped US81c in September.
Other currencies also leapt: the euro was up 0.8 per cent to $US1.2393; the yen advanced 1.2 per cent to 92.00; sterling added 1.6 per cent to $US1.4219; the kiwi gained 0.8 per cent to US74.12c; and, the Canadian dollar was 0.7 per cent higher at US81.05c. The Mexican peso rose 0.9 per cent against the US dollar.
In Davos overnight, US Treasury Secretary Steven Mnuchin told reporters that he saw value in a weaker currency.
"Obviously a weaker dollar is good for us as it relates to trade and opportunities," Mr Mnuchin said. The currency's short term value is "not a concern of ours at all", he said.
"Longer term, the strength of the dollar is a reflection of the strength of the US economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency," he said.
The US dollar was already on the backfoot in the wake of a decision earlier this week by President Donald Trump to impose tariffs on washing machines and solar panels.
Trade disputes have had a history of pressuring the US dollar lower, according to a morning note from TD Securities.
"The US-Japanese auto spat (93-95) saw about a 10 per cent slide" in the US dollar index, paced by the yen, TD said. "The US-EU steel tariffs (01-03) saw a 27 per cent slide in the DXY, consistent with the sharp rise in the EUR."
TD said while it's a challenge to measure the move in currencies "in isolation from other macro factors", the auto and steel disputes did result in the greenback trading "at a steep discount to rates, suggesting a rising risk premium. We see similar optics now."
There's a chance the greenback could extend its retreat.
Mr Trump is due to speak Friday at the World Economic Forum in Davos, Switzerland, and investors are concerned he will use the speech to signal a more protectionist policy stance.
Ahead of the speech, the European Central Bank will meet on Thursday.
Later this morning New Zealand will release its fourth-quarter CPI. Capital Economics is expecting headline inflation to have held steady at 1.9 per cent in the quarter as the boost from rising petrol prices was offset by a seasonal decline in food prices, with core inflation having dropped back to 1.4 per cent.
On Wednesday, Westpac lifted its Australian dollar forecast for the end of 2018 to US72c, from a previous forecast of US70c, after revising its expectations for US interest rate hikes as the US economy continues to strengthen.
with Bloomberg, Reuters