SYDNEY: The dollar hovered at a four-year peak against a basket of major currencies early on Tuesday, on track to post its biggest monthly gain in well over a year even as some analysts warned its three-month long rally was at risk of running out of puff. Trading in Asia is likely to be subdued with investors keeping a wary eye on the spreading pro-democracy protests in Hong Kong and with a raft of holidays in the region this week.
The dollar index last stood at 85.605, not far from an overnight peak of 85.798 - a high not seen since July 2010.
It's monthly gain of 3.5 percent, if sustained, would be the largest since February 2013.
In the past three months, the dollar index has surged more than 7 percent, driven in part by expectations the Federal Reserve will start to hike interest rates well ahead of most other major central banks.
Data on Monday showing US consumer spending accelerated in August supported the upbeat outlook for the US economy. "Looking ahead, we expect data this week to show continued divergence in economic fundamentals to support the USD," analysts at Barclays wrote in a note to clients. As a result, US Treasury yields have risen with the two-year yield nearing 0.6 percent, a high not seen since May 2011.
That in turn has bolstered the appeal of the greenback against its low-yielding peers. The dollar scaled a fresh six-year high of 109.75 yen overnight and last traded at 109.41. The euro came within a whisker of its November 2012 trough of $1.2661 before edging back to $1.2690.
Euro zone inflation data due later on Tuesday will be closely watched by euro bears, but a bigger-than-expected rise in Germany's annual inflation could potentially help keep the euro zone rate stable. One of the worst performing major currencies this month would have to be the New Zealand dollar, which is down nearly 7 percent.
Data on Monday confirming the Reserve Bank of New Zealand had intervened to weaken the currency proved the central bank could talk the talk and walk the walk.
The kiwi last stood at $0.7775, having plumbed a near 14-month low of $0.7708 on Monday. Doing nearly as badly is its Australian peer.
It has suffered a drop of more than 6 percent this month, a vicious turnaround for a currency that had been trading in a remarkably stable 92-95 cent range.
The Aussie fell out of favour as market volatility picked up following the end of the summer lull and as carry trades lost their lustre.
China's patchy economic growth and further declines in the price of iron ore, Australia's biggest export earner, then become excuses for selling the Aussie.
Momentum sellers joined the fray as key chart support levels gave way, handing the currency a one-way ticket to its 2014 trough of $0.8660 set in January.
The Aussie fell as far as $0.8684 overnight and last traded at $0.8718.
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