Dollar lower at noon on mixed sentiment

THE Australian dollar was slightly weaker at noon, despite rallying overnight on the back of improved sentiment from the US and Europe.

THE Australian dollar was slightly weaker at noon, despite rallying overnight on the back of improved sentiment from the US and Europe.

Despite opening almost half a US cent higher this morning, due to the return of risk sentiment, by noon (AEST) the Australian dollar was trading at 103.17 US cents.

Royal Bank of Scotland FX strategist Greg Gibbs said the dollar's movements were closely linked to fluctuations in global equities markets.

"The currency continues to correlate highly with equities, which has been the pattern over the last week," he told AAP.

Mr Gibbs said equities rallied overnight on the back of short-selling bans in Europe.

"We've been in an up-and-down trading environment all week and the market is not confident enough yet."

Mr Gibbs said the European debt crisis remained a key factor in determining market confidence.

He said there was little coming up in the way of local data, however US CPI data due to be released next week would also impact the course of the Australian dollar.

Mr Gibbs said the local unit had traded between 103.57 and 103.05 US cents during the local session this morning.

Meanwhile, the Australian bond market was weaker at noon as market sentiment improved, causing local traders to sell safe-haven bonds in favour of relatively riskier investments.

At noon, the September 10-year bond futures contract was trading at 95.55 (implying a yield of 4.45 per cent), down from 95.545 (4.455 per cent) on Thursday.

The September three-year bond futures contract was at 96.18 (3.82 per cent), down from 96.210 (3.790 per cent).