Dollar falls after weak Chinese data

THE dollar is slightly lower in quiet trade as markets await tomorrow's European Central Bank (ECB) announcement.

THE dollar has fallen after the release of weaker-than-expected Chinese manufacturing data.

At 12pm AEST today, the local unit was trading at 104.76 US cents, down from 105.19 cents yesterday.

This morning, China's official purchasing managers' index (PMI) was released, showing that manufacturing activity fell to an eight-month low in July.

NAB head of research Peter Jolly said the figures were a negative for the Australian currency.

"The Chinese PMI was a little bit under what people were expecting, we had a flash estimate last week that suggest that manufacturing recovered in July," Mr Jolly said.

"This (today's official manufacturing) number suggested a slight slippage.

"It has taken the wind out of the Aussie (dollar's) sails."

The US Federal Reserve has started a two-day policy meeting, which ends tomorrow morning (Australian time), and there were hopes that it would result in third round of an economic stimulus measure called quantitative easing (QE).

Tomorrow, the European Central Bank (ECB) meets, and is expected to discuss ways to reduce borrowing costs for debt-laden euro zone nations.

Mr Jolly says expectations for the outcome of these meetings has been lowered.

"There is some nervousness as we move closer to these meetings that perhaps we're not going to get as much as people hope and on the Fed side that's certainly our expectation," he said.

"We're not going to get quantitative easing tomorrow, we'll get some positive comments and talk of additional support for the economy down the track."

Meanwhile, the Australian bond market was firmer.

At 12pm AEST today, the September 10-year bond futures contract was trading at 97.020 (implying a yield of 2.980 per cent), up from 96.970 (3.030 per cent) yesterday.

The September three-year bond futures contract was at 97.510 (2.490 per cent), up from 97.450 (2.550 per cent).