The Australian dollar tumbled almost two US cents to its lowest level in more than 11 months and could move back below parity with the greenback in the next 24 hours.
The currency fell to 100.47 US cents early today, its lowest level since June 2012.
But by 7am AEST the Australian dollar had recovered some ground and was trading at 100.92 US cents, still well down from 102.43 US cents at yesterday’s local close.
Bank of New Zealand currency strategist Mike Jones said the sharp fall was the result of a surge in the value of the US dollar against all major currencies.
“Currency markets have certainly exploded into life,'' he said. “Investors have bought the US dollar with gay abandon and the Aussie dollar has been caught up in that; it's copped an absolute hiding.''
He said the rally in the US dollar came after the greenback pushed above a key level against the Japanese yen.
“A lot of investors were waiting for the US dollar to break above 100 yen and now that has happened it's prompted a piling back of big investors into the US dollar.''
Mr Jones said the Australian dollar may regain some ground early today as investors took profits after the sharp fall but, he added, it could move lower later in the day, possibly dropping below 100 US cents tonight.
Easy Forex senior currency dealer Francisco Solar also thought the dollar was headed back below 100 US cents.
“Definitely parity is on the horizon and possibly below,'' he said.
Commsec economist Savanth Sebastian did not expect the dollar to move below parity in the short term but said it would move lower as the US economy improved.
He said a move lower was good news for the Australian economy but bad for consumers.
A lower dollar would push fuel prices higher and make it harder for retailers to discount imported goods, he said.
“But it would support the export sectors like manufacturing and agriculture,'' he said.
“And, it may just mean that Australians are more likely to travel interstate than overseas, which will have a positive economic impact.''
Economists and currency experts point to a number of possible reasons for the fall, including rising expectations the US will wind back some of its stimulus efforts - which would be good for the US currency - and a move higher in the greenback against the Japanese yen.
The US dollar moved above 100 yen for the first time in more than four years overnight, which may have prompted large-scale investors to buy the greenback, pushing it higher against all currencies.
Mr Solar said a weaker outlook for the Australian economy and expectations of further interest rate cuts, along with signs of improvements in the US economy also made the dollar less attractive to investors.
“The reasons why the Aussie went up are the reasons it has gone down again,'' he said.
Meanwhile, a number of big name investors have backed a fall in the dollar.
Billionaire investor George Soros reportedly bet $1 billion on a fall in the dollar against the greenback earlier this week, while high profile hedge fund manager Stanley Drunkenmiller said the currency was expensive.
“We think the Australian dollar will come down and will come down hard,'' he said according to Bloomberg.
