Aussie falls steeply after surprise rate cut by Reserve Bank of Australia

On Tuesday the Australian dollar suffered a sharp drop after the Reserve Bank of Australia unexpectedly cut rates to 2.25%, citing the need to achieve balanced growth.

"At today's meeting, taking into account the flow of recent information and updated forecasts, the Board judged that, on balance, a further reduction in the cash rate was appropriate," Central Bank's Governor Glenn Stevens said in a statement. "This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target."

AUD/USD slumped 1.89% to 0.7655, after the announcement, while USD/JPY changed hands at 117.10, down 0.38%.

Earlier data showed Australia's trade for December experienced a deficit of A$436 million, narrower than the deficit of A$775 expected. Building approvals fell 3.3% month-on-month, less than the expectation of a fall of 5.0% month-on-month.

Overnight, the greenback slipped lower against the other major currencies on Monday, after data showed that manufacturing activity in the U.S. expanded at the slowest rate in 11 months in January.

In a report, the Institute for Supply Management said its index of purchasing managers fell to 53.5 last month from a reading of 55.5 in December. Analysts had expected the manufacturing PMI to decline to 54.5 in January.

The data came after the Commerce Department said that personal spending fell 0.3% in December, worse than expectations for a decline of 0.2%. Personal spending rose 0.5% in November, whose figure was revised down from a previously reported gain of 0.6%.

The report also showed personal income rose 0.3% in December, above forecasts for 0.2% and after gaining 0.3% in November.

Sentiment on the US dollar became fragile on Friday after the Commerce Department said in a report that the U.S. economy expanded 2.6% in the final three months of 2014, below expectations for a 3.0% gain and slowing sharply from growth of 5.0% in the three months to September.