The dollar fell to a one-year low against a basket of currencies this morning after Chinese data came in stronger than expected and added to economic recovery hopes, prompting investors to keep shifting funds to riskier and growth-linked currencies.
The dollar dropped to a seven-month low against the yen and a one-year trough versus the New Zealand dollar. Broad selling of the greenback also lifted the euro to a fresh 2009 high.
The Australian dollar erased earlier losses and gained versus the US dollar after data showed China's industrial output expanded in August at the fastest rate in 12 months, slightly topping forecasts and showing that it was well on the road to recovery.
Traders said pressure in the market to sell the U.S dollar was already strong on improving economic data and company earnings from the United States on today, even before the Chinese data boosted risk-seeking sentiment.
"The pressure to sell the dollar is very strong and people are not questioning holding dollar short positions," said a trader for a Japanese trust bank.
The dollar index, a gauge of the greenback's performance against six other major currencies, fell as low as 76.548, its lowest since September 2008, before trading at 76.573, down 0.2 per cent on the day.
The dollar dropped as low as 91.13 yen on trading platform EBS.
Traders said dollar buying seen as coming from options desks looking to hedge their books which have exposure to options triggers crowded towards 90 yen are slowing the dollar's fall versus the yen.
"Financial markets overall are staying calm (about the dollar's recent weakness) as stocks are firmer and there was solid demand for U.S. Treasury auctions this week," said Kosuke Hanao, head of treasury products sales at HSBC.
He said market participants will likely take the dollar's softening in stride as long as its pace is only gradual, but that there were concerns how far the greenback will weaken.
Reuters