The Australian dollar touched a six-week low as worries about offshore financial companies had investors selling risk-sensitive assets.
At 1700 AEDT, the Australian dollar was trading at 65.52/55 US cents, down from Tuesday's close of 6603/08 US cents. It was also buying 58.6 yen, and 50.6 euro cents.
In morning trade, the domestic currency touched a six-week low, at 64.57 US cents, as investors sold risk-sensitive assets on more concerns about offshore companies.
The Dow Jones Industrial Average index finished 4% lower at 7949.09 as the share price of the world's largest institutional money manager, State Street Corporation, fell by 48% in New York trade.
The Boston-based company reported that its net income in the fourth quarter of 2008 was 71% lower compared with the same period a year before.
Australian sharemarkets were softer but not as weak as Wall Street lead, with the benchmark S&P/ASX200 index closing down 1% at 3442.8 and the broader All Ordinaries index was 0.9% lower at 3394.8.
RBC Capital Markets senior senior currency strategist Sue Trinh said the local session was a game of two halves with investors selling riskier assets before a turnaround in the afternoon.
''Early in the Asian session most of the price action was defined by significant risk aversion, with US equities closing sharply lower,'' Ms Trinh said.
''That saw all risk proxies sold off right across the board and a strong demand for US dollars.''
Ms Trinh said the Australian dollar recovered some earlier losses during an incredibly choppy session after investors were less pessimistic than in morning trade.
''With Asian equities opening not as weak as expected, all of that move was reversed and everything turned higher again,'' she said.
Despite lower interest rates and cheaper petrol, Australian consumers were more pessimistic in January compared to December, the latest Westpac-Melbourne index said on Wednesday.
The Westpac-Melbourne Institute consumer sentiment index fell 2.2% in January.
Ms Trinh said the market ignored the consumer sentiment data.
The local currency could be placed under further pressure when the minutes from the Bank of England's January board meeting, when it cut the official bank rate by half a percentage point to 1.5%, were released during Wednesday evening offshore session.
''It might be revealed that some members were going for a greater than 50 basis point cut at the last meeting,'' Ms Trinh said. ''In which case it could send risk aversion higher, with certainly the downside representing the greater risk.''
At 1600 AEDT, the Reserve Bank of Australia's trade weighted index was at 53.9, down from Tuesday's close of 54.4.
AAP
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AAP
