Dollar drops after more Euro debt woes

THE dollar was almost half a US cent lower this morning amid worries that the European government debt contagion is spreading.

THE dollar was almost half a US cent lower this morning amid worries that the European government debt contagion is spreading.

At 7am (AEST) today, the Australian dollar was trading at 105.05 US cents, down from 105.48 cents yesterday.

Since 5pm (AEST) yesterday, the local unit traded between 104.79 US cents and 105.64 cents.

Concerns over European government debt crisis intensified on Monday night (AEST) after Fitch Ratings cut its outlook on Belgium to "Negative" from "Stable" because of a protracted political crisis that has left the country without a permanent government for months.

This followed a similar downgrade by Standard and Poor's for Italy over the weekend and the European Central Bank holding off taking more shaky Greek bonds onto its balance sheet for an eighth straight week.

Westpac senior market strategist, Imre Speizer, said European worries prompted investors overnight to move away from risk assets, such as the Australian dollar, and move into safe-haven investments.

"It was driven mainly by scary Europe," Mr Speizer said from Auckland.

"The new information last night was (that) Fitch put Belgium on a negative outlook.

"Earlier on Monday, you had China's PMI slipping a bit, which might have fed through to commodities.

"The Aussie was the underperformer of the day, so everything went down but the Aussie went down more than most."

Mr Speizer said concerns over Europe would be the main driver for the Australian dollar for the next couple of days until March quarter capital expenditure data is released on Thursday.

He said the 105.00 US-cent mark now was important for the Australian dollar. If it fell much below that mark, then it may keep falling.

"If it broke below that, then there is nothing but fresh air until you get to 102.50 US cents," he said.

Mr Speizer said he expected the Australian dollar to trade in a range between 104.80 US cents and 106.30 cents today.