Concern over Spanish bonds pushes Aussie dollar lower

THE Australian dollar fell to a 14-week low against its US counterpart, prompting expectations it could test parity in weeks.

THE Australian dollar fell to a 14-week low against its US counterpart, prompting expectations it could test parity in coming weeks.

However, the local currency regained its lost ground to finish the local trading day steady from its previous close.

The intraday drop came amid renewed concerns about Spain's ability to repay its mountain of sovereign debt.

At 5.00pm AEST, the Australian dollar was trading at 103.02 US cents, down from 103.03 cents yesterday afternoon.

The local currency fell as low as 102.26 US cents this morning, its lowest intraday level against the US dollar since early January.

Easy Forex currency trader Tony Darvall said the Australian dollar slumped overnight as Spanish bond yields rose, adding to fears of a fresh sovereign debt crisis in Europe.

Mr Darvall said the local currency recovered most of its lost ground during the afternoon session.

"We did hit a low early in the session but since then we've had a bit of a recovery," Mr Darvall said.

"But the overall trend is still down."

Spanish 10-year bond yields rose to 5.81 per cent, from 5.74 per cent, last night (AEST) adding to fears the country would struggle to meet its debt commitments.

Mr Darvall said developments in Europe were likely to be the primary driver for the Australian dollar over the next few days.

"The story that everyone is watching at the moment is Spanish bond yields," he said.

"If they continue to widen, we are going to have the same sort of ongoing debt crisis we had in early 2011."

He said the negative sentiment could push the local currency below parity with the US dollar for the first time since December 2011.

"The Aussie is weak and it is so close to the parity level at the moment that it is likely we will test it."