The Reserve was late yesterday preparing to intervene strongly in both the US and UK markets in a bid to ensure that there were enough buyers to match sellers throughout the night.
It is only the Reserve Bank's second co-ordinated intervention since the plunge in 2001 that took the Aussie below 50 US cents.
The Bank began buying Australian dollars on Friday as the Aussie fell towards 62 US cents before crashing through 61 US cents on the weekend on its way to a five-year low of 60.57 cents.
By late yesterday the intervention had held the line at US61.22 cents. Against Japan the Aussie remained near its all-time, buying just 57.37 yen.
The Reserve is at pains to stress that it is not trying to support the Aussie at any particular level.
"What we are doing is providing liquidity to an illiquid market," said a Bank spokesman.
Without the Reserve Bank's intervention many traders who want to sell Australian dollars would be unable to find buyers, effectively closing the Australian dollar market or resulting big step-downs in price...
"What's happening now is different to earlier episodes," said an official source familiar with the intervention.
"In 1998 and in 2001 there were people taking big positions against the Aussie. That's not what's happening. There's no-one out there trying to punt the Aussie lower."
"People are selling because they have to, in order to get access to other currencies. Or they might be liquidating a whole book, some of which will have Aussie in it."
"In fact if you talk to most people out there, they all think the Aussie has overshot. But they don't have the money to put on the other side buy it."
The Reserve Bank is dipping into its reserves of around $40 billion to support the Aussie dollar. Around $25 billion of these are in the form of foreign currencies.
The St George Bank has downgraded its forecast for the Australian dollar, saying it does not expect the dollar to improve until the middle of next year.
The Commonwealth Bank's foreign exchange chief Richard Grace is more pessimistic, saying that the Aussie could well revisit its all-time low of 49 US cents and that there are risks it fall even further.
"Investors are seeing the Aussie as a 'proxy' for world growth," said St George chief economist Besa Deda.
"As well China is one of Australia's key trading partners and there are increasing signs that its economy is slowing. Those worries have spurred selling on commodity markets. This too is pushing the Aussie lower."
Funds manager Stephen Miller at Blackstone Inc said while the Aussie was clearly headed down over the medium term, it might bounce, "quite strongly" before the end of this year.
"Traders are selling the Aussie first because they can. It is a more liquid market than that for currencies such as the New Zealand dollar. As they adjust holdings, the Aussie might bounce, but it is still headed down."
