The Australian dollar has sunk below 87 US cents for the first time in three-and-a-half years.

The currency plunged late on Friday following reports of China placing more scrutiny on its coal industry, and comments from a Reserve Bank of Australia (RBA) board member indicating a desire for the dollar to fall to 80 US cents.

At 1700 AEDT on Friday, the Australian dollar was worth 87.05 US cents, down from Thursday's 88.03 cents.

During a 40 minute period in afternoon trade the currency dived from 87.59 US cents to 86.89 US cents - its lowest point since July 2010.

Traders were reacting to a report that China's Banking Regulatory Commission had issued default alerts to banks on risky wealth management products tied to the coal industry.