The U.S. dollar moved back to trade little changed against the euro, giving up earlier gains which drove the European currency to an eight-month low against the greenback on U.S. inflation data for June.
The Labor Department said on Tuesday its Consumer Price Index increased 0.3 percent last month after May's 0.4 percent gain. Gasoline accounted for two-thirds of the rise in prices last month. In the 12 months through June, the CPI increased 2.1 percent after a similar rise in May.
The dollar last traded near $1.35 against the euro, after earlier hitting $1.3458, the lowest since November 21.
The was the main mover on developed world currency markets, after the country's central bank chief said he was happy with current interest rate levels and made no attempt to talk down the currency. The Aussie traded 0.2 percent higher on the day at $0.94.
The was a touch lower after a couple of days of raised nerves over the situation in Ukraine and Gaza that had driven the traditional safe haven close to its highest in two months against the dollar and a six-month peak against the euro.
Analysts said the day's main event would be U.S. inflation data due later, and they were also focusing on a meeting of foreign ministers in Brussels due to discuss the bloc's attitude to Russia's involvement in Ukraine.
The Aussie has gained steadily since hitting an almost four-year low at the start of this year, driven by signs of improvement in its domestic economy and an easing off, at least for now, of nerves over Chinese growth.
Governor Glenn Stevens, who has in the past engaged in verbal intervention to support growth, said he was content with the current level of interest rates, prompting markets to pare back slightly bets on another cut in rates this year. Data on Wednesday is also expected to show inflation topping its 2-3 percent target.
"Governor Stevens chose not to talk down the currency, as has been the central bank's want in past months, and that boosted the Australian dollar," said Jane Foley, a strategist at Rabobank in London.
"That said, I doubt the bank feels particularly confident in the Australian economy's recovery as yet. Until we see greater signs of capital investment coming through, the Aussie will be vulnerable at these levels."