The Australian dollar retreated on Monday from the 79 US cents level it had earlier breached for the first time since November on option-related selling. The Aussie was $0.7876/77, pulling back around 30 basis points from a three-month high of 79.08 US cents. The Aussie had recovered quickly from Friday's sell-off after Ian Macfarlane, the Reserve Bank of Australia governor, refused to be specific about the timing of any potential interest rate increase.

Markets quickly priced in the likelihood of tightening by the Reserve Bank of Australia as early as March but the currency was unable to hold onto its early gains on option-related selling.

"I think the Aussie has done a phenomenal job holding up considering MacFarlane's less-hawkish comments last week," said David Mozina, currency strategist at ABN Amro in Sydney.

"The markets are extremely long the Aussie and the US dollar has found bids in Asian trading".

Copyright Reuters, 2005