The Australian dollar struggled to regain ground on Wednesday as risky assets sagged across the board in a knee-jerk selloff to China's surprise step towards policy tightening. The Aussie, which had struck multi-month highs on the yen, the euro and sterling only on Monday, barely rebounded after China's policy move sparked stop-loss selling and knocked out long positions on the Aussie.
Some investors were worried China may tighten further, threatening sales of Australian commodities. China is the world's No 1 buyer of top Australian exports iron ore and coal. "The Aussie is the obvious short-term victim from this," J.P. Morgan said in a note. The Aussie was soft on the yen at 84.12, after suffering its biggest daily drop in eight weeks in offshore trade on Tuesday. It traded at 85.55 seen here late Tuesday, and had hit a 15-month high of 86.20 only on Monday.
Against the US dollar, the Aussie was down at $0.9234, from Tuesday's $0.9276, but well off a low of an offshore low $0.9172. There was market talk that Asian central banks were taking advantage of the Aussie's weakness to buy the currency. Yet, some analysts markets should welcome China raising the reserve requirement ratio for banks as it prevents speculative bubbles from forming and protects the economy in the longer run.
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