Dollar lower on the back of US GDP figures

THE Australian dollar continues to trade lower following news that the US economy shrunk in the last three months of 2012.

THE Australian dollar continues to trade lower following news that the US economy shrunk in the last three months of 2012.

At 12pm AEDT today, the currency was trading at 104.25 US cents, down from 104.73 US cents yesterday.

The currency fell overnight after US government figures showed the world's largest economy contracted at an annual rate of 0.1 per cent in the fourth quarter of 2012, primarily due to cuts to defence spending.

Westpac chief currency strategist Robert Rennie said markets were anticipating softer growth but did not expect such a weakening of the economy.

"It was disappointing and that was a factor weighing on US equity markets, which obviously closed with modest losses, and I think it's something that hit the Australian dollar," he said.

Mr Rennie said the Australian dollar was also underperforming against the euro, which strengthened overnight.

He said there were signs investors were seeing some "normality" breaking out in Europe.

"Strangely enough that suggests, if anything, we should see the Australian dollar weaken vis-a-vis the euro," he said.

Mr Rennie said, with no major economic data due today, the Australian dollar was likely to remain relatively flat during the remainder of the local session.

He said the next major drivers for the currency would be the release of US non-farm payrolls tomorrow night (AEDT) and the Reserve Bank of Australia's meeting on February 5.

Meanwhile, Australian bond futures prices were higher at noon. At 12pm today, the March 10-year bond futures contract was trading at 96.565 (implying a yield of 3.435 per cent), up from yesterday's local close of 96.520 (3.480 per cent). The March three-year bond futures contract was at 97.170 (2.830 per cent), up from 97.130 (2.870 per cent).