The Aussie slumped to a fresh 33-month low today as the US central bank signalled plans to rein in its stimulus program before the end of the year and China's economy showed more signs of a slowdown.
At 5pm AEST, the Aussie was trading at US92.29c, down from US94.92c yesterday. This afternoon the currency fell as low as US92.24c, its lowest level since September 2010.
Overnight, the US Federal Reserve upgraded its forecasts for the US economy, and its chairman, Ben Bernanke, said it would be "appropriate" to moderate the pace of the central bank's bond purchases later this year, as long as the economy continued to improve.
The comments by Mr Bernanke triggered a rise in US bond yields and a strengthening of the greenback and immediately applied pressure to the Aussie. Economists said the outlook was most likely for a further sharp weakening of the Aussie.
"A move towards the end of quantitative easing in the US means more downward pressure on the Australian dollar. Expect it to fall towards US80c," said Shane Oliver, chief economist at AMP Capital, one of the country's biggest fund managers.
The Aussie has fallen 11 per cent since the start of May, as markets began to anticipate steps by the Fed to wind in its $US85 billion a month bond-buying program.
"The question is does an impulsive run lower gather steam...If anything, the FX market can be counted on to overshoot. So the balance of probabilities is a move lower," said Andrew Salter, currency strategist at ANZ.
Still, Mr Salter said the Fed's decision to start withdrawing stimulus would be directed by the strength of economic data, and there could be no guarantee that the world's biggest economy was now in a sustainable recovery.
He said it was a "verifiable fact" that the Fed had been overly optimistic before and US growth was likely to be slowed by planned budget spending cuts later this year.
"Historically, they have been overly optimistic. And there is always the yet-to-come effect of tighter fiscal policy. If we do get an impulsive move below US90c, that's an opportunity to start scaling into long positions," Mr Salter said.
The Aussie was also hit hard by news that an initial indicator of China's manufacturing activity in June fell to a nine-month low.
The preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 48.3 in June from a final reading of 49.2 in May, HSBC said today.
HSBC announced a downward revision of its forecast for economic growth in China in 2013 to 7.4 per cent from 8.2 per cent, joining other banks that have scaled down their estimates in recent weeks. The bank said China's new leadership seemed to have a focus on meaningful long-term reform and was less interested in short-term stimulus measures to bolster growth.
"Three months into the job, Beijing's new leaders are clearly determined to use the reform process rather than stimulus to sustain growth," HSBC said.
The Aussie has come under further pressure as economists predict the need for more cuts in interest rates over the coming months.
Australia's mining investment boom is fading, dragging on growth. The resource-rich economy grew by 2.5 per cent in the first quarter from a year earlier, below its decade-long average of 3 per cent. Unemployment has been nudging higher since the start of the year.
The Reserve Bank of Australia said earlier this week that activity outside of the mining sector was "subdued" and the Aussie, while lower, remains high relative to recent falls in prices for key exports.
The RBA added that a benign inflation environment "might" provide it scope to cut interest rates further, adding to the seven cuts since late 2011, which have taken the benchmark cash rate to a record low of 2.75 per cent.