Australian Dollar lower as sentiment unravels

THE Australian dollar was more than one US cent lower today, as risk sentiment deteriorated and Asian equity markets tracked Wall Street firmly into the red.

THE Australian dollar was more than one US cent lower today, as risk sentiment deteriorated and Asian equity markets tracked Wall Street firmly into the red.

Risk sentiment unravelled overnight as fears about global growth, European sovereign debt and bank liquidity added to poor US manufacturing data.

At 1200 AEST, the Australian dollar was trading at 103.37 US cents, down from 104.83 US cents yesterday.

Since 0700 AEST on Friday, the local unit traded between 103.86 US cents and 103.13 US cents.

OZForex foreign exchange dealer Michael Judge said downside momentum had continued for the Australian dollar after US stocks slid sharply overnight, while Asian equity markets were also firmly in the red by noon.

"At the moment, we're kind of at the mercy of global equity markets,'' Mr Judge said.

"There is a little bit of a return to the volatility and choppiness we saw last week.''

Wall Street lost four per cent overnight on new worries about a second recession in the United States and Europe, prompted by an investment bank report and poor economic data from the US.

Fears about the liquidity of european banks and the Greek bailout also resurfaced, further hurting sentiment.
A key US manufacturing index taken by the Federal Reserve Bank of Philadelphia showed manufacturing activity took a sharp hit in August, falling to -30.7 from 3.2 in July.

In addition, US jobless claims rose back above the 400,000 threshold.

"If we get any more movement away from risk appetite this evening then we could be opening a fair bit lower on Monday morning,'' Mr Judge said.

The Australian dollar was likely to trade in a range between 102.50 US cents and 104.20 US cents over then next 24 hours, he said.

Meanwhile, the Australian bond market was firmer at noon as traders sought out safe-haven investments.

The September 10-year bond futures contract was trading at 95.805 (implying a yield of 4.195 per cent), up from 95.640 (4.360 per cent) on Thursday.

The September three-year bond futures contract was at 96.470 (3.530 per cent), up from 96.300 (3.700 per cent).