The Australian dollar closed lower on Tuesday, after the central bank surprised financial markets by opting to leave official rates unchanged rather than hiking.
At 1700 AEDT, the Australian dollar was trading at $US0.8801/06, down 0.33 per cent from Monday's close of $US0.8831/34.
It was the lowest close for the Australian dollar since December 23, 2009, when it ended at $US0.8759/61.
Since 0700 AEDT on Tuesday, the local unit has traded between $US0.8782 and $US0.8920.
The Reserve Bank of Australia (RBA) left the overnight cash rate at 3.75 per cent following its monthly board meeting.
RBA governor Glenn Stevens said the bank was waiting to evaluate the impact of past rate rises by itself and commercial lenders on the domestic economy.
The RBA had raised the cash rate by 25 basis points at each of its board meetings in October, November and December to a current 3.75 per cent.
"Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point," Mr Stevens said in a statement accompanying the decision.
"Since information about the early impact of those changes is still limited, the board judged it appropriate to hold a steady setting of monetary policy for the time being."
Westpac senior currency strategist Sean Callow said the fall in the Australian dollar was no surprise given the RBA's decision.
"There was a textbook reaction on the Aussie," he said.
"It was pretty much at the day's highs before the rate decision."
Most market economists had expected the RBA to lift the cash rate by a quarter of a percentage point to four per cent following its board meeting.
Higher interest rates can support a currency as investors move funds that may yield better returns.
Australia's key interest rate of 3.75 per cent compares favourably to Japan's 0.1 per cent and the US federal funds rate's target range of zero to 0.25 per cent.
Economic data due in the US during Tuesday's offshore session include pending home sales and vehicle sales, both for December, and the ABC consumer confidence report for January.
Mr Callow said currency markets would derive their direction from investor sentiment on equities during Tuesday's offshore session.
He forecasts the Australian dollar to move between $US0.8740 and $US0.8840.
Meanwhile, the Australian share market closed higher. The mining and gold sectors led the Australian share market higher on Tuesday after the Reserve Bank of Australia (RBA) unexpectedly left the cash rate unchanged at 3.75 per cent.
The benchmark S&P/ASX200 index rose 81.2 points, or 1.79 per cent, to 4,605.3, while the broader All Ordinaries index lifted 84 points, or 1.85 per cent, to 4,628.8.
On the Sydney Futures Exchange, the March share price index futures contract was 63 points higher at 4572, on volume of 38,225 contracts.
Economists had expected the RBA to raise the cash rate by a further 25 basis points on top of its three consecutive moves late last year.
However RBA governor Glenn Stevens said lenders had generally raised rates more than the cash rate in recent months and most loan rates had risen by close to a percentage point.
RBS Morgans private client advisor Craig Walker said the RBA decision had taken the market by surprise.
"But the market has basically held the same level throughout most of the day," Mr Walker said.
He said some retail stocks had rebounded in afternoon trading, in the wake of the RBA decision.
Mr Walker said the market's performance on Tuesday was mostly generated by leads from stronger global markets overnight.
"I think prior to last night, the Dow (Dow Jones Industrial Average index) had traded down seven out of the last nine sessions," he said.
"I guess it was getting to a point where we were due for some respite."
I
n the resources sector, global mining giant BHP Billiton jumped $1.26, or 3.2 per cent, to $40.46 while rival Rio Tinto surged $3.60, or 5.3 per cent, to $71.01.
