The Australian dollar was pinned near 11-week lows by the US dollar, which found strength in upbeat housing data and a steepening yield curve.
The Aussie eased to $US0.8756 on Wednesday from $US0.8790 late on Tuesday and 93 US cents earlier in the month.
Traders said it may now test support levels in the $US0.8740/50 area and a break could see a retracement to $US0.8645 and even $US0.8566.
"We've been trending down for almost two weeks now and it's built considerable momentum," said a trader at a local bank. "We wouldn't be surprised to see it approach $US0.8550 before buyers are tempted back in for the longer-term."
But the Aussie held up better against other currencies as signs of a US recovery should ultimately be positive for global economic growth, and thus for commodity demand and prices.
The Aussie held steady at 80.30 against the yen and at 0.6150 versus the euro. The yen was saddled with expectations that Japanese interest rates would remain low for months to come, while Europe's single currency had been hurt by a third credit downgrade of Greece.
The Aussie also regained some ground on the Kiwi dollar after New Zealand GDP disappointed with a rise of only 0.2 per cent, suggesting rates there could stay low for months to come.
Liquidity was very light with Tokyo on holiday, keeping all the major currencies in tight ranges. So far on Wednesday, the Aussie had traded in a snug $US0.8744 to $US0.8783 band.
The US dollar had been aided by a sharp 7.4 per cent jump in existing home sales, which supported the market's recent optimism on the economic outlook.
That pushed 10-year Treasury yields up to 3.76 per cent, a four-month high and a rise of 28 basis points in just three days.
As a result the spread of Australian yields over US shrunk to 182 basis points, the smallest in over seven months.
The gap between US two and 10-year yields also widened to a record 285 basis points, making it attractive for investors to borrow short and lend long.
Australian bond futures tracked the losses in Treasuries.
The three-year contract eased 0.060 points to 94.970, with the 10-year future off 0.060 points at 94.335.
