The Australian dollar hit a 28-year high against the greenback on Tuesday after a surprise Australian interest rate hike, while the U.S. currency stayed weak on expectations of fresh monetary easing. The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.75 percent as a pre-emptive strike against inflation, sending the Aussie above parity to $1.0013. It was the second time the currency has scaled parity since it was floated in 1983. The RBA's move increased the interest rate differential between Australia, where rates are rising, and the United States, where the Federal Reserve is widely seen as easing policy further on Wednesday to help stimulate the economy. Analysts said this view would support the Australian currency while providing one more reason to sell the dollar, which has already suffered on speculation that more Fed easing will further weaken the currency. "We're entering uncharted territory, but the Aussie has staying power up here," said Carl Hammer, chief currency strategist at SEB in Stockholm. "We see it trade above parity in the mid term, as there's also the issue of general dollar selling." Investors also anticipated results of U.S. midterm elections, with analysts saying the dollar may initially gain slightly on relief after clearing a hurdle in a week piled high with event risk. The dollar index .DXY was down 0.34 percent at 77.03 against a currency basket. The Australian dollar traded 1.1 percent higher on the day at $0.9980 with near-term gains seen limited by stop-loss orders around $1.0015. The euro EUR= gained 0.5 percent to $1.3959, with talk of demand of a semi-official European name helping boost the single European currency. The single currency was also helped by strong German PMI numbers. [ID:nSLA1ME6GY]. Jeremy Stretch, head of currency strategy at CIBC World Markets said the strong German PMI data and uncertainty before the U.S. elections and the Fed meeting could push the euro back above $1.40.

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