The dollar has managed to regain some of the ground it lost overnight after news broke that a Chinese port would no longer be accepting Australian coal imports, prompting fears for the nations exports.

The drop came only hours after the better-than-expected January labour force figures pushed the dollar to highs of just above 72 US cents (the highest price since February 6).

The sell-off was prompted by news that the Chinese port of Dalian would no longer be accepting Australian coal, and brought the dollar down a full percentage point in an hour, hitting a low of $US0.707.

A spokesperson for Commonwealth Bank stockbroking arm CommSec told The New Daily that the sell-off was a surprise given the strength of those labour figures. 

“Under those circumstances you would normally see the currency rally quite substantially, but it was counterintuitive to see it sell off the way it did,” he said.

“Some people were suggesting it was because another major bank had called for two rate cuts at the end of this year in their forecast, but in reality it seemed to be an early response to the news that the Chinese had taken these measures with relation to the Port of Dalian.”

Since then the dollar has clawed back some of those losses to hover just below the 71 US cents mark.

Chinese decision downplayed

In his comments to the House of Representatives Standing Committee on Economics on Friday morning, Reserve Bank governor Philip Lowe said the Dalian port decision would have little impact on Australia’s coal exports.

Mr Lowe said the blockage represents only two months of exports and added that the coal can be sold to other markets if needed, albeit this would likely be at a lower price.

Regardless, Mr Lowe said the decision is not expected to “derail” the economy, but cautioned that the reason behind the decision not to take Australian coal will be important in the broader context of Australian-Chinese political and trade environment.

In a note to investors, CommSec said the refusal to take Australian coal, and the sharp reaction the dollar had to the news, both pose questions for market participants.

Month of ups and downs

The dollar has broken above $US0.72 on several occasions since January 23, and hovered consistently at that level between January 30 and February 6 before dropping back down to levels closer to the current price.

That consistent strength followed a surprise ‘flash crash’ on January 3 that saw the dollar hit its lowest point since January 2016 at $US0.69, before rebounding the following day.