The Australian dollar fell to its lowest level in more than three months amid a weak night on global stock markets, after comments from European Central Bank (ECB) president Mario Draghi caused stock markets to slide.
But, by 0700 AEDT on Friday, the currency had pared back some of its loss and was trading at 102.84 US cents, down from 103.30 cents on Thursday afternoon.
The Australian dollar dropped to 102.74 US cents, its lowest level since October 24, early on Friday morning, after Mr Draghi's comments on the euro's recent rise in value.
At a press conference following the ECB's decision to keep the cash rate on hold at 0.75 per cent, Mr Draghi indicated the central bank was monitoring the effect of the euro's rise on inflation.
HiFX senior trader Stuart Ive said the comments hurt stock markets in the US and Europe, and risk currencies like the Australian dollar.
"What he basically said is that inflation has been impacted by the high euro, taking away some of that inflationary aspect which could ultimately end up stifling growth," he said.
"After those comments, the euro got sold off, stock markets across Europe and the US came off as the market kicked into risk aversion and hence the Australian dollar got pushed further to the downside."
Mr Ive said the key event for the Australian dollar on Friday would be the release of the Reserve Bank of Australia's quarterly Statement on Monetary Policy.
He said the release of Chinese inflation figures for January on Friday afternoon would also impact on the currency, because of its implications for the country's monetary policy.
But, Mr Ive said, the Australian dollar was likely to remain under pressure for the next week or so.