In late afternoon local trade, the Aussie was fetching US70.30¢, compared with just below US71¢ at the same time on Monday.

The currency's decline, which reflected investor flight from Asian – including Australian – shares into the Japanese yen and other safe haven assets, followed earlier stability after overnight gains triggered by another sell-off of the US dollar.

The yen strengthened to a 16-month high against the greenback, and investors piled into government bonds, driving up prices and compressing yields to new lows.

The benchmark Australian government bond, for one, was yielding 2.46 per cent on Tuesday. It was the first time the return had slipped below 2.5 per cent since last August, during China-related market turmoil.

More dramatically, the yield on the equivalent Japanese note dropped below zero – to as little as negative 0.018 per cent – from around 0.045 per cent on Monday. It was trading at negative 0.012 per cent late on Tuesday.

Tuesday's sub-zero return was the lowest ever, and followed the Bank of Japan's decision two weeks ago to pay a negative interest rate on some bank reserves.

About 29 per cent of the outstanding debt in the Bloomberg Global Sovereign Bond Index was yielding less than zero early on Tuesday, Bloomberg said.

Swiss 3 per cent notes due in 2018 were offering the lowest yield in the index.

"In the next month or so, the Japanese Government Bond market will be volatile until players find a level to settle," Naoya Oshikubo, a rates strategist at Barclays in Tokyo, told Bloomberg.

"The 10-year yield will likely stabilise in a 0 to 0.2 per cent range eventually, finding a floor around zero."

National Australia Bank senior market strategist Gavin Friend said negative yields in Japan and Europe threatened to further fuel the so-called "currency wars" in "a race to the bottom against the US dollar".

"Until the last couple of weeks, such had been the rise in the US dollar, the more oil prices were pressured lower, forcing other central banks such as the ECB to recalibrate and extend their monetary easing," he said.

"That process both feeds the global currency war and poses potential problems for bond markets and investors as more bonds yields go negative."

Tuesday's equity and currency sell-off came after the Australian dollar seemed to have defied the broad move out of risk assets, holding up at US70.80¢ before regional stocks began trading.

BK Asset Management's managing director of foreign exchange strategy, Kathy Lien, said the week-long Chinese New Year break had offered some respite to both the Australian and the New Zealand dollars.

"The rally in the Australian and New Zealand dollars were a bit counter-intuitive, given the sharp drop in US.equities," she said early on Tuesday, "but with Chinese markets closed, we are mostly seeing consolidation in those currencies."

The Aussie's resilience appears to be at odds with market pricing on interest rate expectations.

Citi data on interest rate futures shows the chances of a cash rate cut – to 1.75 per cent – is at 100 per cent for the August meeting of the Reserve Bank of Australia. This compares with an 84 per cent chance under Monday's market pricing.