Weaker investor sentiment sent the Australian dollar to its lowest levels since October in thin trading conditions because of the Lunar New Year celebrations in Asia.
The sharemarket was flat, also in thin trading, as investors remained cautious ahead of a spate of earnings reports this week.
There were few local triggers for the dollar sell-off and analysts pinned the move on views that the Reserve Bank may again have to cut rates in the coming months, citing recent dovish commentary from the bank.
"The Aussie dollar has continued to take a hammering on the dovish assessment the RBA made in its recent statement. Moderate inflation pressures and soft labour market conditions are giving room for further easing," said CMC Markets trader Ben Taylor.
"Today's confidence and conditions both improved from a low base. However, weakening employment conditions added downward pressure to the Australian dollar," he said.
At 5pm AEDT the dollar was trading at $US1.0255, down US0.46c.
Among equities, banks and resources stocks mostly declined, with Westpac, ANZ, National Australia Bank, BHP Billiton, Rio Tinto, Woodside and Newcrest down between 0.3 per cent and 2 per cent.
Stocks traditionally yielding high dividends outperformed, with Commonwealth Bank, Telstra, Woolworths, QBE and Amcor up between 0.2 per cent and 2.5 per cent as the bond market renewed an eight-month sell-off.
The benchmark S&P/ASX 200, having rallied since the middle of last year, ended little changed at 4959. During the day, the gauge touched 4981.5, the highest level since April 2010.
"The Australian market has been up for many months and with the reporting season coming up, there is some worry that results might not be strong enough," said Nader Naeimi, a portfolio manager at AMP Capital.
"Investors are going into this reporting season with quite a bit of fear."
The value of shares traded remained relatively light at $3.8 billion, compared with an average of $4.1bn in the fourth quarter.
Caution prevailed as numerous companies prepared to report profit this week as the earnings season gets under way in earnest.
CBA, CSL, Stockland, Leighton, Rio Tinto, Wesfarmers, Boral and Ansell are among companies due to report their results today. Investors were also awaiting the outcome of some major events with potential to unnerve or ignite markets, including US President Barack Obama's State of the Union address and a key EuroGroup meeting.
Some investors remained optimistic after data from China and the US suggested the economies of Australia's two biggest trading partners were recovering.
Among stocks that rose yesterday, Bradken surged 11 per cent after the mining equipment maker said its order books had stabilised and that margins might improve in the second half of its fiscal year. Acrux jumped 9.9 per cent after the US allowed it to patent a new underarm testosterone product.
"The money flow is continuing to support equities at the expense of bonds," said White Funds managing director Angus Gluskie.
"In recent days, that's been accompanied by upside earnings surprise from unloved and heavily shorted stocks like Newcrest and JB Hi-Fi."
The electrical retailer jumped 17 per cent on Monday after reporting 3 per cent rise in first-half net profit and forecasting better than expected full-year earnings. Newcrest rose 5 per cent on Friday reporting stronger than expected first-half profit.
