The Australian dollar surged almost two percent on Tuesday after the country's central bank dropped its bias towards easing interest rates and toned down its long-term call for the currency to weaken.
The dollar and euro gained back some ground against the yen but were firmly in recent ranges, reflecting the drop in volatility that accompanied the flood of money out of emerging economies in search of traditional safe havens in the developed world.
Foreign exchange currencies.Getty Images
The Aussie has fallen by almost a fifth in the past 12 months as a commodities boom expired, growth in China began to slow and the central bank campaigned for a weaker currency to help stir economic growth.
Some strategists have begun to turn more positive and there has also been talk in the market of Chinese investors buying the Australian currency at the start of the Year of the Horse. But the Reserve Bank of Australia's signals on Tuesday were a surprise to many.
(Read more: Australian dollar has a huge day, thanks to RBA)
"Together, these statements suggest that the exchange rate is approaching levels at which the RBA is more comfortable and that policymakers are removing the threat of using their most powerful tool to drive it lower," Citibank analysts said in a note for European clients.
"This will be viewed as the market as an all-clear signal on the currency and is likely to invite a further reversal of short positions among leveraged investors."
