Tumbling Chinese equities and a drop in US Treasury yields driving a push out of the risk-sensitive currency.
At close of trade yesterday, the dollar was trading at US86.42c, down US0.94c from Monday's close of US87.36c. It was also down against the euro and the yen.
Australian bonds were a beneficiary of the global developments, as prices on both ends of the curve gained.
US stocks were little changed, but the bond market moved significantly, with the yield on the 10-year US Treasury note approaching 3 per cent.
Jonathan Cavenagh, a currency strategist with Westpac, said a recent slide in yields had lead to a surge in trader talk about the potential of a "double dip" recession in the US.
With global growth concerns already heightened, a 4 per cent drop in Chinese stocks further drove down the higher-yielding Australian dollar. The drop in Chinese equities largely stemmed from the Conference Board, which said its leading index for China posted its smallest rise since November.
"The move in Chinese equities was shocking to me. That isn't the be all and end all of their economy, but that's a good (barometer) for Asia, and especially for the Aussie," Mr Cavenagh said.
While not as significant as the move in US Treasuries, Australian bond yields also declined yesterday.
The May 2013 Australian government bond was yielding 4.5004 per cent, down from 4.5379 per cent late on Monday.
Aside from the drop in Chinese stocks, the move in bonds also stemmed from the looming end of the financial year today, according to David Verschoor, director of credit for BNP Paribas.
With fund managers in the process of closing their books on the year, few are looking to add high levels of risk or make big changes to their portfolios.
"It looks like year-end rebalancing is a lot of what's going on," Mr Verschoor said.
