Dollar On The Rise as Australian Dollar On The Decline

The dollar rose on Thursday after strong retail sales data from the United States bolstered the resilience of the world's largest economy, confirming that the Federal Reserve still has room to tighten rates.

In other news, the Australian dollar fell after data on Thursday revealed that employment fell for the second consecutive month in January, while the unemployment rate rose to its highest level since last May.

The Australian dollar, which had been slightly higher the day before the data release, fell more than 0.5% to an intraday low of $0.6868 in the aftermath, and was last bought at $0.6872.

"The readings for January have really undershot market expectations," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"Overall, some weakness indicated by the report ... probably caused markets to pare back some of the interest rate rises pencilled in for the RBA rate hikes."

Meanwhile, retail sales in the United States rebounded sharply in January after two consecutive monthly declines, driven by purchases of automobiles and other goods, according to the Commerce Department.

The greenback surged in response to the data release and held most of its gains on Thursday, with the US dollar index closing 0.07 percent higher at 103.87, having hit a near six-week high of 104.11 the previous session.

The euro was unchanged at $1.0687, while the New Zealand dollar fell 0.28 percent to $0.6263.

"The U.S. economy continues to operate well. There's very strong labour market data coming through, and the consumers are well supported," said Jarrod Kerr, chief economist at Kiwibank. "We do think the Fed's got a little bit more work to do."

The retail sales figures came just a day after US data showed inflation slowing but remaining sticky.

Markets now expect US interest rates to rise above 5.2 percent by July.

Sterling fell 0.19 percent to $1.2015 in other currencies, after falling more than 1% the previous session.

British inflation slowed more than expected in January, with signs of cooling price pressure in areas of the economy closely monitored by the Bank of England, according to data released on Wednesday.

This adds to evidence that further significant interest rate hikes by the Bank of England are unlikely.

"It's still a very high number. The good news is that inflation is likely peaking, or has peaked. So the outlook for UK's inflation is improving," said Kiwibank's Kerr.

The yen rose marginally to 134.07 per dollar after gaining some support following the nomination of Kazuo Ueda as the next central bank governor, which raised market hopes that the 71-year-old could end Japan's ultra-low interest rates sooner than expected.

"The Bank of Japan looks set to change its ultra-loose policy as inflation takes root," said analysts at BlackRock Investment Institute.

"We think the wage and inflation dynamics at play mean the current policy stance has likely run its course."