/www.fxserver.com/ THE Australian dollar's rally was crushed overnight with the unit falling one US cent today as expectations of an imminent and quick war with Iraq sparked a rally in the US dollar.
At 1200 AEDT, the dollar was at $US0.5921/26 compared with $US0.6017/22 at yesterday's close.
The currency's rally back over US60 cents came to an abrupt halt and it dropped to a low of $US0.5910 overnight.
National Australia Bank strategist Michael Jansen said the local dollar was not targeted directly but suffered collateral damage in fallout from flows between euro and sterling and US dollar and Swiss currencies.
US President George W. Bush today gave Iraqi leader Saddam Hussein just 48 hours to avert war by going into exile with his sons, an option aides to Saddam had already flatly rejected.
Mr Bush also urged Iraqi forces not to fight, and not to set oil wells alight.
"It was pretty constructive price action in the Aussie yesterday. It had a nice bounce which pushed it up to 60.20 in the early European session and then it was hosed off to hit 59.10 the overnight low," he said.
From that low the Australian dollar recouped a little ground to get to a high of $US0.5935 early today before sliding back again to intraday lows of $US0.5920.
"The market is shell shocked. The Aussie was just marked down because of the denominator effect, the US dollar, there was not a great deal of flow and I think that will remain the case until we get through this period of uncertainty which might be a while yet," Mr Jansen said.
At 1200 AEDT the Australian dollar on the Reserve Bank of Australia Trade Weighted Index was at 54.0 points from 54.4 at yesterday's close.