AFP - The dollar wobbled on Tuesday before the Federal Reserve's latest monetary policy meeting and US mid-term elections, while the Australian dollar hit parity with the greenback after a shock rate rise.
In trading here, the European single currency climbed to 1.3973 dollars from 1.3897 dollars late in New York on Monday.
Against the Japanese currency, the dollar rose to 80.62 yen, one day after striking a new 15-year low at 80.21 yen on growing expectations that the Fed could decide to restart stimulus measures, known as quantitative easing.
The bank's Federal Open Market Committee (FOMC) begins a two-day meeting on Tuesday and is expected to unveil more bond purchases to help bolster economic recovery -- but analysts think that this might weaken the dollar.
On the eve of the decision, the Reserve Bank of Australia (RBA) sprang a surprise interest rate increase, sending the Australian dollar, or "Aussie", surging back above parity against the greenback.
Expectations had been for no change.
In reaction, the Australian dollar surged as high as 1.0013 US dollars, nailing the highest level since it was floated in December 1983. The latest pinnacle came after the Aussie had smashed through parity on October 15.
"What could have been a quiet day ahead of tomorrow's FOMC meeting and prior to today's US mid-term elections was turned on its head after the Reserve Bank of Australia hiked interest rates by 25 basis points to 4.75 percent. This surprised the market," said Forex.com analyst Kathleen Brooks.
"The rate hike caused the Aussie dollar to sky-rocket and it is the strongest performing currency out of the majors so far today."
India's central bank raised benchmark interest rates on Tuesday by a quarter of a percentage point, its sixth this year aimed at curbing stubborn inflation in the booming economy.
The rate rises focused attention on the growing divergence between the fast-expanding Asia-Pacific region and Europe and the United States where recovery is faltering, analysts said.
"The interest rate increases occur amid positive signals about the prospect of Asian economies against persistent sluggishness in advanced economies in Europe and the US," said Matt Robinson, senior economist at Moody's Analytics.
China last month made its first rate rise in three years to curb inflation and spiralling property prices. South Korea, Taiwan and Malaysia have also begun raising borrowing costs, among other emerging nations.
Interest rate decisions are also scheduled in Britain and the eurozone on Thursday.
On Tuesday, the British pound dived as disappointing construction data sparked fresh speculation that the Bank of England could restart quantitative easing.
In London, the euro changed hands at 1.3973 dollars against 1.3897 dollars late in New York on Monday, at 112.65 yen (111.88), 0.8732 pounds (0.8661) and 1.3761 Swiss francs (1.3781).
The dollar stood at 80.62 yen (80.49) and 0.9850 Swiss francs (0.9913).
The pound was at 1.6001 dollars (1.6042).
On the London Bullion Market, the price of gold firmed to 1,357.50 dollars an ounce from 1,354.50 dollars an ounce late on Monday.
