Dollar lower on risk aversion, US concerns

THE dollar was trading at around half a US cent lower at noon, as news of America's credit rating downgrade caused traders to take less risky investments.

THE dollar was trading at around half a US cent lower at noon, as news of America's credit rating downgrade caused traders to take less risky investments.

At 12.00pm AEST today, the Australian dollar was trading at 103.94 US cents, down from 104.42 cents on Friday.

The domestic currency dropped on Friday night after Standard & Poor's reduced America's credit rating from a sterling AAA to AA+, due to the failure of bitterly divided US leaders to reach a consensus on containing the country's spiralling debt.

Asian equity markets opened in the red on Monday, while Australia's benchmark S&P/ASX200 index was down 59.6 points, or 1.45 per cent, at 4,045.8 points at 1237 AEST.

"That's not surprising, given the news flow," Deutsche Bank foreign exchange strategist John Horner said.

The overall impact on currency and equity markets had been somewhat muted, he said.

"We do think the decision has been fairly well flagged as a possibility and that's reduced the immediate response.

"While the timing was surprising, given the market volatility of last week, the fact that it happened isn't a complete surprise."

He said risk appetite could be further stunted, should Europe's sovereign debt crisis escalate.

"Whether the ECB (European Central Bank) is successful in calming the strains in bond markets there, particularly the Italian sovereign bonds, it will be important as to whether the current bout of risk aversion continues."

Meanwhile, the Australian bond market was weaker.

At 1200 AEST, the September 10-year bond futures contract was trading at 95.440 (implying a yield of 4.560 per cent), down from 95.525 (4.475 per cent) on Friday.

The September three-year bond futures contract was at 96.220 (3.780 per cent), down from 96.310 (4.690 per cent).