The Australian dollar has shed more than half a US cent after the strongest American factory activity data in more than two years stirred US stimulus tapering expectations.

At 0700 AEDT on Tuesday, the local unit was trading at 91 US cents, down from 91.59 cents on Monday.

The currency hit a low of 90.89 US cents during offshore trade after the Institute for Supply Management’s (ISM) US factory activity reading for November showed the strongest result since April 2011.

Deutsche Bank foreign exchange strategist John Horner said this data convinced traders the US Federal Reserve’s Federal Open Market Committee (FOMC) could begin tapering its stimulus measures this month.

“Expectations that the Fed may begin tapering its bond purchases, even as soon as the December FOMC meeting, heightened and that has weighed on the Australian dollar,” he said.

“The ISM clearly was the attention grabber.”

Separate official US construction data showed a 0.8 per cent increase in October, to $US908.4 billion ($A998.30 billion), which was the fastest pace since May 2009.

The Reserve Bank of Australia (RBA) is widely expected to leave its interest rate on hold on Tuesday at its last monthly board meeting for 2013.

Retail trade data for October is also due out.

AAP