This post is in part a response to the link provided by Zach. I am still trying to absorb the information about China’s motivations, but it seems that they are wanting to sell down their holdings of U.S. debt so that they can diversify. I do not see that as an attack on the U.S. dollar or that China is trying to drive the dollar down etc.
However, at this link, you will find more relevant information regarding what his happening and the role of Ben Bernanke and quantitative easing. What it explains is that the quantitative easing is flooding the market with U.S. currency and that is driving the dollar down.
I understand your concerns over the lower dollar rate because Australia went into the doldrums after we floated our currency in the 1980s. To be very precise, this was done prior to our move for a short-term posting in the USA in 1984. The Australian dollar went through the floor whilst we were there which affected what my husband was receiving in his pay. We were being paid in Australian dollars converted to US currency, so it really did hurt. Also, the parity with the English pound was very messed up, and it is still not that great!! Then when we had our trip in 2009 we were affected by exchange rates in a different way but we ended up losing.
It seems to me that it is the decision on quantitative easing that is causing the problems, and that China will make decisions based upon what Ben Bernanke announces in the near future. There are some very good reasons for China to want to get rid of those bonds that they are holding, especially the Freddie Mac and Fannie Mae ones. So to me that is not at all surprising.
I think it might be worth while trying to find out what is happening via other hedge fund operators i.e. George Soros. I suspect that George might be about to get up to his tricks just like when he broke the bank of England.