The currency was down 0.35 of a cent to 98 cents US as nervous investors piled into U.S. Treasuries. The yield on the U.S. 10-year Treasury went as low as 1.4 per cent.
Moody's Investor Services moved late Monday to lower the outlook on Germany's AAA rating to negative from stable due to mounting uncertainties from the eurozone debt crisis.
Moody's also downgraded outlooks on the Netherlands and Luxembourg and affirmed Finland's AAA rating.
The agency noted that the cost of supporting Italy and Spain in the eurozone would fall most heavily on better rated members "if the euro area is to be preserved in its current form."
Worries that Spain may need a full-blown sovereign bailout weighed on markets. The country has been mired in recession and its banks are saddled with billions of euros in toxic loans arising from a collapsed real estate market.
Confidence in Spain's ability to deal with its finances has taken a beating, with the country forced to pay ever higher yields in order to finance its debt. The yield on its benchmark 10-year bond surged well past the seven per cent mark Monday, a level considered unsustainable.
The yield on the country’s 10-year bonds was off early highs but still up another 0.08 percentage points Tuesday at 7.51 per cent. On Monday the yield rose to an intraday high of 7.56 per cent.
Also unnerving investors were media reports that three EU officials believe Greece will have to restructure some €200 billion in debt, which would place more strain on the European Central Bank and the other 16 eurozone countries.
The report surfaced a day before representatives of Greece’s creditors are due in Athens for weeks of talks ahead of their next report on Greece’s austerity program, on which continued payment of bailout money hinges. Greece depends on rescue loans from its European partners and the International Monetary Fund to keep paying for vital public services and servicing its loans.
Meanwhile, Statistics Canada reported that retail sales rose 0.3 per cent in May to $38.9 billion.
That was lower than the 0.5 per cent rise that economists expected.
The commodity-sensitive loonie was also pressured by falling prices for oil and metals.
The September crude contract on the New York Mercantile Exchange shook off early losses to move up 36 cents to US$88.50 after plunging almost $4.
Copper lost three cents to US$3.35 a pound on top of Monday's seven-cent drop while August bullion lost $1.20 to US$1,576.20 an ounce.
Copper prices fell despite some positive news about the Chinese economy.
Preliminary results of HSBC’s monthly survey of Chinese manufacturers showed the contraction in manufacturing eased in July. The bank’s Purchasing Managers' Index, which combines various measures of manufacturing activity, rose to 49.5 from 48.2.