The sudden tightening of fiscal policy in China again is seen sending a new wave of tests on the inner strength of the Australian dollar and equity markets.

The unexpected increase in the interest rates devised by China will buttress the Australian dollar's drive to reach parity against the US dollar.

Analysts said the Aussie dollar and the stock markets would feel the impact of this fiscal policy correction as fears of a tightening fiscal policy of China, one of Australia's top export destinations, may also crimped on demand.

The US dollar, on the other hand, went up against other currencies as China's move discouraged demand for assets related to economic growth such as that of the Australian dollar.

In New York, Australia's dollar lost against the American dollar, falling from within a cent of parity as traders anticipate that China's move will curtail commodity demand.

A currency analyst from New York's Societe Generale said in a commentary that China's surprise move could easily weaken demand for commodity currencies like the Aussie and the Canadian dollar.

Bloomberg said in a related report Australia's currency declined 2.1 percent to 96.86 U.S. cents after rising 0.7 percent to 99.60. It traded stronger than a one-for-one basis with the U.S. dollar on Oct. 15 for the first time since exchange controls were removed in 1983.

The People's Bank of China said on its website today China raised its benchmark lending and deposit rates for the first time since 2007 to ease the pressure of inflation as it rose to the fastest pace in 22 months. The one-year deposit rate will increase to 2.5 percent from 2.25 percent, effective tomorrow.