The dollar gained across the board on Tuesday, bolstered by safe-haven demand spurred by worries about a potential slowdown in China, which dragged down both European and U.S. stocks.
Global miner BHP Billiton said it saw signs that growth in iron ore demand was flattening in China, Australia's single biggest export market. That pushed the Australian dollar down more than 1 percent.
In addition, China's National Development and Reform Commission raised domestic retail energy prices effective Tuesday, the second time in less than two months. Even though that still leaves a wide gap between international and domestic prices, investors were concerned that higher energy costs could further undermine an already slowing Chinese economy.
The dollar is gaining because of its safe-harbor appeal on worries about Chinese growth. The risk-off market that we're seeing has bolstered demand for the dollar as a safe haven, said Joe Manimbo, senior market analyst at Travelex Global Business Payments in Washington.
In mid-afternoon trading, the dollar index, a gauge of its value against six major currencies, was up 0.2 percent at 79.593 .DXY, rising for a second straight day.
The dollar has also benefited from positive U.S. economic data, rising in tandem with stocks and Treasury yields. Travelex's Manimbo said next week's round of U.S. economic reports should boost the greenback should they turn out to be supportive of U.S. growth expectations.
Upbeat U.S. economic data spurred a rise in U.S. Treasury yields as investors scaled back expectations of further quantitative easing in the near term and prompted speculation the Fed may tighten monetary policy earlier than it had pledged.
To many investors, it now appears that the dollar can't lose because it is strengthening in periods of pessimism and optimism, said Kathy Lien, director of FX research at GFT in Jersey City.
To understand why this is happening, we have to take a step back and realize that at this specific point in time, there are very few places more attractive to investors than the U.S.
The Aussie was one of the biggest casualties in the dollar's rally on Tuesday, further undermined by minutes from Australia's central bank deemed as dovish as they suggested that the bank has ample room to ease policy should conditions worsen.
Against the U.S. dollar, the Australian dollar slid to US$1.0480, down 1.2 percent for the day, while the New Zealand dollar slumped 1.2 percent to US$0.8167.
Key technical support for the Australian dollar lies at the 200-day simple moving average of $1.0401 while the 100-day SMA lies at $1.0370. Resistance is seen near $1.064.
Most currency activity was in the crosses, with investors covering short positions in the euro while selling the Aussie, Kiwi and Canadian dollars, he said.
Euro/dollar is sidelined today and those trying to sell into rallies should continue to be frustrated as the currency pair remains stuck in a range, said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut.
The euro last traded at $1.32310, down 0.1 percent on the day, not far from a one-week high near $1.32659 hit on Monday, with support at the 100-day moving average around $1.32013.
Long-term investors were largely absent from trade, with model-related funds and short-term macro discretionary participants the primary drivers of price action.
Some investors were cautious about pushing the euro higher ahead of talks between Italy's government and unions on reforms seen as key to turning around the euro zone's third-largest economy and paying down massive debts.
Moves in the dollar versus the yen picked up in European trade after a quiet Asian session when Japanese financial markets were closed for a national holiday.
The dollar rose 0.4 percent to 83.698 yen, moving back toward an 11-month high of 84.187 hit last Thursday on trading platform EBS, while the yen hit a fresh four-month low versus the euro of 110.824 yen.
Currency volume dwindled in the afternoon session to around half the 30-day average, according to Forex factory, a currency website.