SYDNEY The rally in the U.S. dollar took a breather in Asia on Tuesday after two top Federal Reserve officials downplayed market fears of an imminent end to stimulus, with one saying the Fed's exit strategy was still way out in the future.
Comments from Minneapolis Fed President Narayana Kocherlakota and Richard Fisher, the hawkish head of the Dallas Fed, sought to inject a dose of reality into markets, which have worked themselves into a frenzy at the thought of the Fed scaling back its bond-buying program.
That saw the dollar index retreat swiftly from a near three-week peak of 82.841 .DXY. It was last down 0.2 percent at 82.381.
The euro bounced to $1.3129, pulling up from $1.3059, while the greenback eased to 97.52 yen from a two-week high of 98.72.
Kocherlakota said financial markets are wrong to view the Fed as having become more hawkish, while Fisher said the Fed would still be running an accommodative policy even if it reduces stimulus.
Those comments also helped spin U.S. Treasuries around, prompting yields to quickly fall back from near two-year highs.
The pullback in the dollar was most dramatic against commodity currencies, which have been among the hardest hit as investors rushed to unwind carry trades.
The Australian dollar rallied to $0.9264, having plumbed to a 33-month trough of $0.9148 on Monday. In two short months, it has shed more than 10 percent against the dollar.
Traders said the Aussie remains stuck in a downtrend, with the first hurdle seen around $0.9325, the June 11 low.
Despite Monday's developments, analysts at BNP Paribas still favored the greenback.
"We believe that rising, or stabilizing, U.S. yields should favor the USD against the low-yielders. Given much lighter FX positioning, we favor cautiously building exposure to USD longs," Vassili Serebriakov and Daniel Katzive wrote in a client note.
Traders said upcoming U.S. data should be watched closely given the Fed's message that it would dial down stimulus if the recovery continued as it expects. Durable goods, consumer confidence and housing data are all due later in the day.
Asia has little to offer in terms of market-moving economic news, but investors will be keeping a wary eye on China after stocks suffered their biggest daily drop in almost four years.
Fears that China's central bank would keep money tight and economic growth could slow sharply saw the CSI300 of the top Shanghai and Shenzhen listings plunge 6.2 percent .CSI300.
(Editing by Wayne Cole)