SYDNEY The dollar wallowed at one-month lows early in Asia on Wednesday after extending a broad decline for a third session, giving beaten-down currencies such as the Australian dollar some breathing space.
But trading is likely to be cautious as investors wait for the latest reading on China's manufacturing activity due at 0145 GMT. Further signs of a slowdown in the world's second-biggest economy will be curb appetite for risk and could support the dollar.
The dollar index .DXY traded at 82.014, following a 0.3 percent fall on Tuesday. It has slid about 3 percent from a high of 84.753 early this month and retraced more than 61.8 percent of its June 19 to July 9 rally.
The greenback's decline came as U.S. Treasury yields retreated from two-year highs after Federal Reserve Chairman Ben Bernanke recently stressed the bank will keep rates low for a long time to come, even if it started to scale back its asset purchases.
Pressure on the dollar saw the euro climb as far as $1.3239, highs not seen since June 21. Against the Japanese currency, the dollar languished below 100 yen, while the euro stayed near Monday's two-month peak around 132.47 yen.
"The USD's on-going slide reflects the combination of stretched long dollar positioning and a move in rate differentials against the U.S. currency," analysts at BNP Paribas wrote in a note.
But its longer-term uptrend remained intact, particularly against currencies such as the euro and sterling whose economies are still mired in recession, they added.
"USD bulls may need to be patient pending a resumption of divergent central bank news and data flows."
The softer greenback also gave the downtrodden Australian dollar a much needed reprieve, allowing it to drift back up to 93 U.S. cents from a 34-month trough of $0.8998 plumbed on July 12.
The immediate focus for Aussie dollar is consumer inflation data due at 0130 GMT. Another benign reading will shore up expectations for a cut in interest rates next month, and push the Aussie down again.
Conversely an unexpected acceleration in inflation could shock markets into paring back rate cut views, lifting the Aussie. Debt markets have priced in about a two-in-three chance of a move at the Aug 6 policy meeting.
(Editing by Richard Pullin)