Dollar falls as iron ore price falls

THE dollar has fallen to a five-week low, following a weaker domestic share market and lower iron ore prices.

THE dollar has fallen to a five-week low, following a weaker domestic share market and lower iron ore prices.

At 12pm AEST today, the local unit was trading at 103.25 US cents, down from 103.72 cents yesterday.

During morning trade, the dollar fell as low as 103.17 US cents, its weakest level since July 26.

The dollar's fall followed a one per cent loss in the value of the Australian share market and a 2.5 per cent fall in the value of securities in the materials sector that comprises mostly miners.

CMC foreign exchange dealer Tim Waterer said there had also been heavy falls in iron ore prices in the past 24 to 48 hours.

"That weakness in iron ore prices has been affecting the Australian materials sector at the moment and the Australian dollar is, in turn, feeling the affects of that," Mr Waterer said.

"Iron ore (prices) fell another five per cent last night.

"That continued iron ore weakness is starting to take its toll on the Australian dollar and that's what's contributing to it being one of the underperformers in the currency market this week."

Tomorrow, central bankers from across the globe will gather in the United States at Jackson Hole, Wyoming, for a weekend summit where US Federal Reserve chairman Ben Bernanke will make the keynote speech.

Mr Waterer said expectations were falling that Dr Bernanke would indicate that the US economy would get another round of economic stimulus from its central bank.

"I think movements in currency markets will hinge on Bernanke's tone," he said.

Mr Waterer said there was a chance the Australian dollar could fall to 102.90 US cents on Thursday afternoon or go as high as 103.70.

Meanwhile, the bond market was mixed at midday.

At 12pm AEST today, the September 10-year bond futures contract was trading at 96.960 (implying a yield of 3.040 per cent), down from 96.895 (3.105 per cent).

The September three-year bond futures contract was at 97.500 (2.500 per cent), up from 97.400 (2.600 per cent).