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The dollar tumbled against a number of majors on Tuesday after Australia unexpectedly raised its key overnight interest rate, fueling appetite for higher-yielding currencies.
Rising commodities prices and expectations of growing interest rate gaps drove the dollar to yearly lows against resource-linked counterparts from Australia and Canada.
At the same time, the dollar moved within a cent of September's yearly low against the euro, in spite of sobering rhetoric from European Central Bank chief Jean-Claude Trichet.
In addition, traders considered that oil producing countries are mulling over idea to accept currencies other than dollar in exchange for oil supplies. A Saudi official downplayed the report, calling it "absolutely untrue."
The dollar dropped to a yearly low of C$1.0550 against the petro-linked loonie as the price of crude rose back above $71 a barrel. Meanwhile, the buck extended its yearly low versus the aussie to 0.8918.
Versus the euro, the dollar slipped to 1.4761, adding to its losses from the previous session. With the retreat, the dollar moved closer to September's yearly low of 1.4843.
The dollar also edged lower versus the yen, slipping to 88.80. Barring intervention from Japanese officials, the dollar is likely to test its 1995 low of 87.08 yen, set back in January.
On the flip side, the dollar remained stable versus the beleaguered sterling, holding in a narrow range near 1.5900.
The Reserve Bank of Australia unexpectedly lifted their key interest rate by 0.25% to 3.25%, fueling speculation that other nations in position to raise interest rates will soon begin to do so. However, officials in Washington have repeatedly signaled that the US economic recovery is too fragile to unwind accommodative policies.
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