The Australian dollar lost ground on Wednesday as fears of a recession in the United States and the knock on effect on global growth saw investors turn risk averse and cut their holdings in high-yielding currencies.
Asian stocks were headed for their biggest fall in two weeks, tracking losses on Wall Street which fell after a dismal services sector report for January stoked fears of a sharp slowdown in the United States. Equity markets have in recent months become the barometer for risk appetite and higher-yielding currencies like the Australian dollar have suffered when stock markets have slumped.
"There is quite a lot of fundamental support for the Aussie to be trading around $0.9000 at the moment," said John Kyriakopoulos, currency strategist at National Australia Bank.
"However, our core case is that the US will flirt with recession, leading to a sharp global slowdown. As this plays out through the year, we see the Aussie pushing down to $0.8500." The Aussie had eased to $0.8958/60 from $0.9066/71 late here on Tuesday, having fallen to as low as $0.8947 during the session.
The Aussie had rebounded to a three-month high earlier this week, from a five-month low struck on January 22, on a rise in commodity prices and expectations of higher domestic interest rates. The Aussie also fell to 95.42/52 yen, from 96.81/91 yen on Tuesday as investors unwound carry trades, where they borrow in the low-yielding yen to buy higher yielding currencies or riskier assets.
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