By Lisa Twaronite, MarketWatch TOKYO (MarketWatch) -- The Australian dollar rallied and then lost its gains in Asian trading Tuesday, after Australia's central bank raised its key policy rate for a second month in a row as expected. The Reserve Bank of Australia hiked interest rates by a quarter of a percentage point to 3.50%. See full story on RBA's latest rate hike. "The Bank raised its rates by 25 basis points, which was widely expected and led to moderate profit taking and may have fueled light [U.S.] dollar buying versus the euro, which pulled back from $1.4805 highs," said currency strategists at Action Economics. The Aussie climbed as high as 90.90 U.S. cents after the rate hike, but later eased back a little to 86.63 cents, down from 90.18 cents in New York late Monday. The dollar slipped to 90.05 yen, from 90.39 yen Monday. The euro changed hands at $1.4763, nearly flat from $1.4764 late Monday, and the British pound was buying $1.6306, down from $1.6383. Overall foreign exchange volume was thin, as Japanese markets were closed for a national holiday Tuesday. The U.S. dollar was pressured throughout the session by a rise in dollar-denominated gold futures. Gold futures tacked on as much as $12 an ounce in electronic trading by the afternoon in Tokyo, to nearly $1,067. See Metals Stocks. On Monday, the U.S. dollar declined versus the euro but gained ground against the Japanese yen after reports showing strength in the U.S. manufacturing and housing sectors. See full story. The U.S. Federal Open Market Committee begins its two-day meeting on Tuesday. An announcement is expected Wednesday at about 2:15 p.m. Eastern time. The overwhelming consensus is that the Fed will hold the federal funds rate steady at near-zero, where the Fed's target has been since last December. But most economists don't expect the central bank to give the market any hints, winks or nods about its battle plan for pushing interest rates higher.

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