By James Ramage

The dollar dropped against currencies tied to large commodity exporters on Friday after China moved to stimulate its economy, spurring hopes for renewed demand in raw materials.

The Australian dollar rose 0.5% to US$0.8665 in late trade, while the New Zealand dollar edged up 0.2% to US$0.7886. The U.S. dollar dropped 0.6% against the Canadian dollar to C$1.1235, a three-week low.

The price moves marked a reversal for the dollar, which has gained against most currencies over the past several months as the U.S. economy has shown improvement in contrast with many of its rivals. Investors have been buying dollars and moving into U.S. stocks and Treasurys in anticipation that the stronger economy would lead the Federal Reserve to raise interest rates, increasing returns for assets denominated in the greenback.

On Friday, the People's Bank of China cut its one-year benchmark lending rate by 0.4 percentage point to 5.6%. The central bank also lowered the guideline deposit rates and gave Chinese banks greater flexibility in setting rates they offer to savers.

The PBOC trimmed rates in response to persistent signs of a slowdown in the world's second-largest economy. Investors moved into the currencies of Australia, New Zealand and Canada in the belief that the rate cuts could lead to a recovery in China and boost its demand for the oil, metals and agricultural commodities these nations provide.

"It drives the idea that we have ongoing stimulus coming from Japan, China and Europe that will stabilize the global growth outlook," said Camilla Sutton, chief currency strategist at Scotiabank. "These currencies are particularly vulnerable to the global growth outlook, as they're exposed to commodities; anything that supports that will support them."

The dollar rocketed against the euro after European Central Bank President Mario Draghi pledged to garner support to expand asset purchases in a manner that financial markets hope will include sovereign debt from eurozone members. The euro fell against most currencies, losing 1.2% against the dollar to $1.2393, its lowest level in a week.

The eurozone has been locked in a battle with anemic growth and extremely low inflation, which has weighed on the euro. The ECB has lowered interest rates and started asset purchases, while the Fed has ended its massive bond-buying program, also known as quantitative easing or QE.

Mr. Draghi's comments reiterated his message the ECB is prepared to explore other channels to boost consumer prices, giving investors more impetus to re-establish bets against the common currency, which had started to slip recently.

"It all says the ECB is moving closer to sovereign QE," said Vassili Serebriakov, a currency strategist at BNP Paribas. "With markets a little less short the euro, there's scope to add to euro-funded risk trades," such as betting on a weaker euro against the commodity currencies and higher-yielding currencies like the Mexican peso.

The dollar weakened against the yen Friday after Finance Minister Taro Aso expressed concern over rapid depreciation in the Japanese currency. Japan has been making efforts to increase inflation toward a 2% target, as well as lift growth, with little success. The greenback slid 0.4% to ¥117.78.

Mr. Aso's comments were "the big mover, first touch highlighting that the pace of depreciation in the yen is proving uncomfortable," Ms. Sutton said. "But that alone isn't enough to shift the downward trend."

Write to James Ramage at james.ramage@wsj.com