Dollar down ahead of FOMC, ESM ruling

DOLLAR is lower, trading quietly ahead of a meeting of the US Federal Open Market Committee and a key euro zone ruling.

THE dollar is lower and trading quietly ahead of a meeting of the US Federal Open Market Committee (FOMC) and a key euro zone ruling in Germany.

At 12pm AEST today the dollar was trading at 103.37 US cents, down from 103.55 cents at yesterday's close.

CMC Markets chief market strategist Tim Waterer said the dollar was in a subdued mode ahead of the two events.

"We haven't seen a move of any great significance this morning, but the currency has drifted lower," he said. "Traders appear to be showing trepidation ahead of the German Constitutional Court ruling and Fed announcement later in the week."

Mr Waterer said there was substantial downside risk posed to the market, depending on the outcome of these decisions.

"If Germany does not rule in favour of the ESM (European Stability Mechanism), or if the Fed does not announce some form of QE3 (quantitative easing), the market will probably spit the dummy big time," he said. "This would cause risk assets to make a big downside move."

The FOMC is expected to bring in QE3 when it meets on Thursday, while the German ruling tomorrow will be the final hurdle in securing the ESM bailout fund for the euro zone.

Meanwhile, Australian bond futures prices were mixed at noon.

At 12pm AEST today, the September 10-year bond futures contract was trading at 96.970 (implying a yield of 3.030 per cent), up from 96.960 (3.040 per cent) at yesterday's close.

The September three-year bond futures contract was at 97.525 (2.475 per cent), down from 97.530 (2.470 per cent).