Greenback hits 12-year peak vs yen after positive U.S. data; Aussie surges on RBA

On Tuesday the dollar rose to fresh 12-and-a-half year peak against the yen as positive data on U.S. manufacturing activity and construction spending spurred renewed expectations for higher interest rates later in the year.

The Australian dollar surged as the Reserve Bank of Australia decided to stand pat on monetary policy.

The U.S. currency surged above 125.00 yen for the first time since late 2002. It has since eased back to 124.64 from a high of 125.07.

"The rise by the dollar against the yen has been steep but sentiment favors testing new highs rather than consolidating," said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

On Monday, data showed that the Institute of Supply Management’s manufacturing index expanded in May, as new orders and employment both recovered. The ISM index of manufacturing activity was 52.8, up from 51.5 in April and ahead of forecasts for 52.0.

A separate report signaled that U.S. construction spending rose to the highest level in six-and-a-half years in April, adding to recent signs that the economy is rebounding from a weak first quarter.

The U.S. Commerce Department said construction spending jumped 2.2% to an annual rate of $1.0 trillion, the highest since November 2008.

The greenback was hardly impacted by data earlier Monday showing that U.S. consumer spending was unexpectedly flat in April.

In the other currency trading, the Australian dollar was a big move surging after the Reserve Bank of Australia stood pat on monetary policy as widely expected but refrained from providing an easing bias that some in the market were looking for.

The battered Aussie was up 1 percent at $0.7683, pulling away from a seven-week low of $0.7598 struck overnight against a buoyant dollar.

The euro rose 0.2 percent to $1.0941, after dropping as low as $1.0887 overnight as it continued to retreat from last week's peak of $1.1006.