The Australian dollar tumbled across the board as investors speculated that a sudden worsening of damaging floods in Queensland could crimp the economy and further put off any hike in interest rates.
The local unit plumbed to a four-week low of $US0.9822, shedding more than one percent on the day on the US dollar .
It also skidded against the euro and the New Zealand dollar as investors trimmed net long Aussie positions.
Flooding in the coal-exporting state of Queensland raced towards Australia's third-largest city of Brisbane on Tuesday, prompting evacuations of its outskirts and partial closure of railways servicing mines.
Analysts have estimated the drag on demand and coal exports could shave economic growth by anywhere from 0.2 to 0.5 percentage points spread over this quarter and last.
Annette Beacher, analyst at TD Securities in Singapore said most economists still believe that the economic impact will be fairly concentrated and somewhat temporary.
"However, the markets are extremely worried about the floods," she said.
"It's about sentiment rather than facts," she added, pointing at positive local economic data released but ignored by markets.
Trade data showed a healthy surplus of $1.925 billion, while Australian job ads rose to the highest level in two years in December.
"If we get a strong employment report on Thursday, that may bring the markets back to reality," Mr Beacher said.
Until then, investors are wagering the drag from the floods has further lessened the risk of an interest rate hike for months to come. Interbank futures imply little chance of a move until the second half of the year.
The market is now pricing in just 17 basis points (bps) of tightening for the next 12 months, down from 35 bps on Monday .
Australian bond futures duly rallied with the three-year contract up 0.14 points at 94.990, while the 10-year contract rose 0.090 points to 94.535.
The latest lurch lower in the Aussie cracked support at $US0.9828 and now targets the December 8 low of $US0.9752.
Resistance is seen in a zone from $US0.9969 to $US0.9994 and then around $US1.0015, the 21 day moving average.
The Australia dollar also struck a five-week low against the kiwi at $NZ1.2928 , having shed three cents in a week.
The local currency was forced back from a near record peak on the euro, losing 1.5 per cent to stand at $A1.3163 per euro .
The single currency received a small boost from news Japan was ready to buy euro bonds to bolster confidence in the European Financial Stability Facility (EFSF).
Still, the euro's gains could be short-lived given talk that Portugal will be next euro zone member to need a bailout, despite denials.
The New Zealand dollar slipped to $NZ0.7593, from about $US0.7630 in early trade.
The kiwi was relatively sanguine after two pieces of moderately upbeat data, with the quarterly survey of business opinion and the new building approvals data showing an uptick.
"We were dragged down by the Aussie," Mr Brdanovic said, adding that strong demand for NZ dairy products, reflected by rising prices, were likely to limit broad kiwi selling.
Support was seen around $US0.7554 and resistance initially at $US0.76380 and above that $US0.7665.
A break above that level was seen pointing to a reversal of downtrend and move above $US0.7700.
