The Australian dollar retreated on Wednesday, after China's surprise interest-rate hike stoked fears of weaker demand for raw materials.

The People's Bank of China (PBOC) announced on Tuesday night that it would raise the one-year yuan lending rate, and the one- year yuan deposit rate by a quarter percentage point each.

According to a report conducted by Australian and New Zealand Banking Group (ANZ) analysts, the PBOC's move was viewed largely as a negative for global growth prospects, and will send risk to the sidelines.

The report released on Wednesday also showed ANZ's China economists are expecting another rate hike in China later this year.

The move by the central bank has surprised the global financial markets, while sending gold, copper and oil prices sharply lower, and commodity-linked currencies tumbling.

According to The Australian newspaper, the Australian dollar was one of the first casualties as global markets recoiled, dropping as low as 96.62 U.S. cents overnight, a 1.9 percent fall from Tuesday's domestic close of 98.49 U.S. cents.

It has fallen nearly four percent since it briefly reached parity with the greenback on Friday.

"Any steps China takes to slow their economy is going to slow the global recovery as well," Matt Zeman, chief market strategist with LaSalle Futures, told Dow Jones Newswires on Wednesday.

"It's going to have a far-reaching ripple effect." Enditem