Australian shares rebounded strongly on Thursday after the previous day’s slump with the All Ordinaries Index jumping 1.7 per cent to 5013.7 points in afternoon trade.

Major banks and resources improved with mining giant BHP Billiton up 7.2 per cent to $15.30 and the Commonwealth, Australia’s largest bank, up 1.64 per cent to $76.97.

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Asian shares also rebounded as speculation the US Federal Reserve might opt to not raise interest rates at all this year hammered the US dollar and sparked a huge rally in oil prices.

By some measures, the US currency suffered its largest one-day percentage drop outside of the crises of 1998 and 2008, symptomatic of just how crowded bullish positions had been.

The sudden reversal provided a much-needed boost to beleaguered commodities, sending oil up no less than 8 per cent, and easing pressure on energy shares and risk appetite.

That relief showed in equity markets where MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.9 per cent.
Australia’s resource-heavy index rose 1 per cent and South Korea 0.5 per cent.

Japanese investors, however, seemed unhappy with the yen’s new found strength against the US dollar and nudged the Nikkei down another 1 per cent.

Wall Street had taken its cue from oil and recouped early losses on Wednesday, in a wild session that saw the Dow swing in a 420-point range.

The Dow ended Wednesday up 1.13 per cent, while the S&P 500 added 0.5 per cent and the Nasdaq Composite eased 0.28 per cent.

Traders were unsure what triggered the US dollar rout, though many pointed to comments from Federal Reserve Bank of New York President William Dudley that tighter financial conditions would be taken into account at the next policy meeting in March.

In an interview with Market News International, Dudley also warned that a sharp rise in the US dollar could have “significant consequences” for the US economy.

Investors took that to mean the Fed did not want to see the currency rise any further and might delay further increases in interest rates.

Futures markets had already priced out almost any chance of a rise in March and imply a funds rate of just 0.51 per cent by December.
 The current effective funds rate is 0.38 per cent.

The impact was amplified by a surprisingly soft reading on the US services sector, just the latest in a string of disappointing economic indicators. 
The market reaction was swift and violent with the dollar collapsing through a host of key chart levels and triggering waves of stop-loss selling.

Early on Thursday, the dollar was down at Y117.94 having shed 1.7 per cent overnight in its biggest daily drop since August.

The fall wiped out all the gains from the Bank of Japan’s decision to cut its rates below zero, a tit-for-tat response that only to added to market suspicions central banks were engaged in a war of competitive depreciations.

Against a basket of currencies, the US dollar was pinned at 97.304, after shedding 1.6 per cent on Wednesday. The euro was enjoying the view at $US1.1092, having climbed 1.7 per cent on Wednesday.

The drop was a boon to commodities priced in US dollars, lifting everything from copper to gold to oil.

Brent futures settled up $US2.75, or 8.4 per cent, at $US35.47 a barrel, after rising as high as $US35.11.
US crude added another 20 cents in early trade on Thursday to reach $US32.49, having jumped 8 per cent overnight.

Spot gold was up at $US1,141.90 an ounce having touched its strongest since October 30.