The Australian dollar was on the defensive on Wednesday after sliding to six-week lows as mounting concerns about the global banking system hammered equities and drove extreme risk aversion. A drop in Australian consumer sentiment for January also dragged down the currency, which has now shed over 7 cents since hitting a three-month peak earlier this month.
Australian consumer confidence index fell 2.2 percent in January as fears of recession overcome improved finances from rate cuts and lower petrol prices. The grim data only added to expectations of deep interest rate cuts in the coming months.
"The Aussie will remain under pressure for the time being as the rate easing cycle is far from reaching the bottom," said Hans Redekar, global head of currency strategy at BNP Paribas.
"We expect the Aussie to fall to $0.57 by the end of the second-quarter as the economy's fortunes are tied to Asia and we expect the next two quarters for Asian countries to be bad." The Australian dollar was at $0.6526, up from a trough of $0.6455, but down from $0.6598 late here on Tuesday and week high of $0.6842.
It also slid to five-week lows against the yen, dropping to as low as 57.88 yen, before recovering a little to 58.61 yen in late trade on Wednesday. Aggressive unwinding of leveraged carry trades, sparked by fresh worries about the financial sector saw the Aussie slide against the yen.