Dollar drops ahead of Euro summit

THE dollar continued its slide this week, falling just over one and a half US cents amid renewed market nervousness as progress seemed to slow on the eurozone debt bailout.

THE dollar continued its slide this week, falling just over one and a half US cents amid renewed market nervousness as progress seemed to slow on the eurozone debt bailout.

At 5pm AEDT the Australian dollar was trading at 101.55 US cents from 103.13 cents yesterday.

Macquarie Bank director of foreign exchange Will Richardson said people were still headline watching for clues to what European leaders were planning ahead of the European Union summit on Sunday.

Data released in the US overnight also dampened the local currency as the US Federal Reserve's Beige Book reinforced the weak economic state.

The Australian dollar opened the local trading session at 102.35 US cents this morning and lost almost one more cent during the day.

"It was a bit of a topsy-turvey old night," Mr Richardson said.

"Wall Street struggled a little bit ... negative comments out of Europe in terms of progress weighed on risk in New York, hence the soggy performance."

He said Asian equities were also under pressure.

The National Australia Bank business survey for the September quarter, released today, showed business confidence fell heavily in September across almost all industries and states.

However, Mr Richardson said this data would not have effected the local dollar.

"People are position-trimming going into the weekend, people are reducing risk.

"There are expectations that we might see something from the EU summit."

The Australian dollar at 5pm AEDT was trading at 74.15 euro cents, down from 74.68 euro cents yesterday, and was at 77.91 yen from 79.15 previously.

Meanwhile, the bond market closed firmer.

At 4.30pm AEDT today, the December 10-year bond futures contract was trading at 95.535 (implying a yield of 4.485 per cent), up from 95.495 (4.505 per cent) today.

The December three-year bond futures contract was at 96.200 (3.800 per cent), up from 96.160 (3.840 per cent).

ANZ Banking Group senior rates strategist Tony Morriss said negative sentiment about a solution to the eurozone crisis dominated the session and encouraged traders to buy safe-haven investments.

"We've got weakness in stock markets across the (Asian) region as well, so that's been helping the (bond) market make up a bit of ground," he said.

"There's the idea we won't see a completed outcome from the weekend's EU summit, that may have to wait for the G20 summit at the beginning of November.

"So that's backdrop and it's seen the (bond) market trade a little bit higher.

Mr Morriss said US economic data had been positive of late and there were some numbers due today night (AEDT) that may give the market a glimmer of hope.

Existing home sales data for September will be released in the US, as well as the weekly initial jobless claims.

"Maybe that might limit the gains (in bond prices) but the major focus remains on Europe."

The RBA's trade weighted index was at 74.9, down from 75.6 yesterday.