According to Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, "what really killed" the rally in the Australian dollar yesterday was a Reuters report that China was banning the import of Australian coal in the northern port of Dalian.
"The reported ban would impact a relatively small proportion of Australia's coal exports - imports through Dalian comprise only 1.8 per cent of Australia's total coal exports - but if the reported ban reflects a more significant deterioration in the trade relationship between Australia and China then it could have more important impacts", he said.
There was some speculation this was China's retaliation for Australia a year ago banning Chinese telecommunications giant Huawei Technologies from its 5G network on security concerns.
"In recent years, China Customs has found that some of the imported coal didn't meet our environmental protection standards when it carried out inspection and testing on safety and quality risks of the imported coal", China's Foreign Ministry spokesman Geng Shuang told reporters.
Traders in China maintained the ban was politically motivated.
"Weaker coals make up the majority of Mongolian exports so in the short term direct replacements for Australian coals would be limited", he said.
"We do not believe that this is isolated to Australia but may well be and is likely applicable to other coal exporters into China as well".
Australia is the world's number one exporter of coal, while China remains its biggest trade partner, accounting for almost 30 percent of Australian sales overseas.
Coal operations being carried out in Newcastle, Australia, in 2015.
The affected ports also comprise only 1.8% of Australian coal exports.
The country's biggest port, the port of Dalian, has reportedly placed a restriction on coal shipments coming from Australia.
The indefinite ban on imports from top supplier Australia, effective since the start of February, comes as major ports elsewhere in China prolong clearing times for Australian coal to at least 40 days.
Australia banned Huawei in August a year ago, recently revoked the permanent residency of a Chinese billionaire over concerns that he's an agent of influence and is pressing the Chinese for access to Australian citizens and permanent residents held in prison or trapped in Xinjiang.
Australia is now the world's biggest exporter of Coal and Anthracite, a high-quality and high-carbon-content type of coal.
AUD traders will also be focusing on developments between the USA and China today as the two nations wrap-up trade talks ahead of the 1 March "trade truce" deadline.
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"I would not jump to the conclusion that it is something directed towards Australia".
Mr Frydenberg said: "We can see these occasional interruptions to the smooth flow but that doesn't necessarily translate to some of the consequences that aspects of the media might seek to leap to".
A purchasing manager at a large steel mill in eastern China said his firm was not concerned about their supply of coking coal, a type of coal used in steelmaking, given sufficient inventory at ports, and did not expect the restriction to spread.