- The Australian dollar backed off three-and-a-half year lows against the U.S. dollar on Monday, but it remained vulnerable amid lingering fears over emerging markets in the wake of a broad based selloff in stocks and emerging markets currencies on Friday.

AUD/USD was up 0.55% to 0.8730, after falling to lows of 0.8659 on Friday, the lowest level since July 2010.

The pair was likely to find support at 0.8500 and resistance at 0.8775, Friday’s high.

Australia’s dollar tracked losses in emerging market currencies after data last week pointed to a steeper than expected slowdown in Chinese manufacturing in January. China is Australia’s largest trading partner. The weak data sparked concerns that a slowdown in China could act as a drag in growth in emerging market economies.

The Turkish lira fell to the latest in a series of record lows against the dollar on Friday, while South Africa’s rand, the Russian ruble and the Argentine peso fell to multi-year lows against the dollar.

Emerging market currencies have come under heavy selling pressure since the Federal Reserve announced plans last month to begin cutting back its asset purchase program, while worries over political instability and the outlook for growth for some countries also fuelled the selloff.

The Aussie was not helped after a Reserve Bank of Australia board member said Friday that a level of around USD0.80 would be a “fair” level for the currency.

Sentiment on the Aussie looks likely to remain fragile ahead of the outcome of the Fed’s monthly meeting on Wednesday, amid expectations for a reduction in its bond buying program to USD65 billion from the current USD75 billion.

Elsewhere, the Aussie pulled away from six-month lows against the yen, with AUD/JPY advancing 0.84% to 89.62, up from Friday’s lows of 88.54.

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