Dollar down on fears of US, EU recessions

A SLEW of bad news from Europe and poor economic data from the US prompted the Australian dollar to tank almost one US cent overnight.

A SLEW of bad news from Europe and poor economic data from the US prompted the Australian dollar to tank almost one US cent overnight.

At 0700 AEST today, the Australian dollar was trading at 103.89 US cents, down from 104.83 US cents yesterday.

Since 1700 AEST yesterday, the local unit traded between 103.00 US cents and 104.83 US cents.

The dollar hit a peak of 110.81 US cents on July 27, its highest level since its float in December 1983.

Velocity Trade foreign exchange dealer Jeremy Jukes said the Australian dollar had suffered overnight, as poor US economic data compounded European fears over sovereign debt and bank liquidity.

European bank stocks took a battering on fears over the global economic recovery and renewed concerns about Greece's bailout.

The bailout ran into trouble when at least five countries demanded the Greek government give them cash as collateral in exchange for their contributions to the 109 billion euro ($A150.07 billion) rescue fund.

"There was a pretty big sell-off in Europe over reignited fears about the sovereign debt situation there," Mr Jukes said.

"But the big moves really came in the US session.

"We got some really bad data on top of the sell-off in Europe."

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, around 6,000 higher than the market had forecast.

Mr Jukes said a report by Morgan Stanley had only fuelled worries about a second recession in the United States and Europe, sending US stocks into a tailspin.

The report said the US and Europe were dangerously close to recession, blaming, in part, policy errors by authorities on both sides of the Atlantic.

"That just added fuel to the fire of all the negative data that came out over night."

Mr Jukes said the Australian dollar would take direction from Asian markets during the domestic session.

"If we see that Asian equity markets continue to fall lower, then the Aussie dollar could go along with that and make its way towards some fresh lows," Mr Jukes said.

The Australian dollar was expected to trade between 103.30 US cents and 104.30 US cents during the domestic session today, he said.