USD Malaise Continues, China CPI Next

USD/CAD fell the most in a year as the US dollar malaise continued Thursday despite a solid reading on jobless claims. The Australian dollar was the top performer while the yen lagged. The market will sharpen its focus on China in the hours ahead with inflation data on tap.

A relentless offer in USD/CAD led to a large fall in the otherwise glacial pair. The loonie was one of the last refuges of US dollar strength, along with gold, but both finally took advantage of the teetering dollar. Despite the declines, USD/CAD remained above 1.03 and the June low of 1.0245. Given the larger-than-normal moves, Friday's Canadian jobs report will be in the spotlight.

Economic data on Thursday was light. Initial jobless claims were the highlight but the report did little to change opinions, at 335K compared to 333K expected. At the margins, jobless claims are pointing to an solid US jobs picture as the four-week moving average fell to the lowest since 2007.

USD/JPY attempted to rally on the jobless claims data, hitting 96.40 and then promptly reversing and continuing to fall to a fresh six-week low of 95.81. Just as the dollar bulls were about to give up, the pair climbed off the mat along with stocks and rebounded to a flat close on the day at 96.58. The rebound paints a doji star on the chart, ending four days of declines.

The Fed's Fisher also helped to calm the frayed nerves of the dollar bulls, saying that if economic data continues to improve as the Fed expects, a September taper is coming. Fisher doesn't have much sway inside the FOMC but it's the clearest hint at a Sept 18 taper yet.

The Australian dollar shook off yesterday's jobs report and rallied on better data from China. The focus on China continues in the hours ahead of the July CPI upcoming at 0130 GMT. The consensus is for a 2.8% y/y rise along with a 2.1% drop in the PPI. Softer inflation could boost commodity currencies on speculation about stimulus.