The Australian dollar retreated sharply from 18-year highs against the US dollar on Tuesday as investors took profits on its steep ascent of the past two weeks and also unwound yen-funded carry trade positions.
Analysts said the Aussie's broader uptrend was intact given the US dollar's ongoing weakness, a recovery in risk appetite which has bolstered stocks and commodities, and expectations that Australia's central bank will maintain a tightening bias.
The Aussie tumbled 1.4 percent against the yen, having risen to a seven-week peak of 103.61 yen early on, as demand cooled for carry trades, which involve borrowing yen at low rates to buy the much higher-yielding Aussie and kiwi dollars.
"It is not surprising for the Aussie to fall on profit-taking ahead of the 90 US cents mark," said Robert Rennie, chief currency strategist at Westpac Banking Corp.
The Australian dollar was quoted at $0.8855/58 against the US currency, down from $0.8910/15 late here on Monday and over 1 percent lower from a fresh 18-year peak of $0.8950 struck earlier in the day.