Dollar lower on euro zone worries

THE Australian dollar has fallen more than half a US cent on renewed concerns about debt in Spain, Greece and Italy.

dollar

THE Australian dollar is slightly lower on concerns around euro zone debt.

At 12.00 AEST on Tuesday, the Australian dollar was trading at 102.71 US cents, down from 103.12 on Monday.

European markets slumped overnight on growing concerns that Greece could exit the euro zone, while Spanish bond yields rose to dangerous highs.

CMC Markets foreign exchange dealer Tim Waterer said this had pushed the Australian dollar down, but it had recovered somewhat on Tuesday morning.

"It's clawed back a little bit of ground, mainly because falls in the equity market are not as big as some have predicted," he said.

Anticipation of the the Chinese HSBC flash PMI (purchasing managers' index) - due for release at 1230 AEST - was also keeping the market subdued on Tuesday.

"I think we'll see the Australian dollar and other risk currencies remain in a holding pattern before that number comes out," Mr Waterer said.

"If we see a sub-par number there, it could affect risk assets, and we could see the Aussie dollar head another half of a (US) cent lower.

"On the flipside, if it came in around 50 or above, we could see the Aussie creep back in the direction of 103 US cents in the afternoon."

Mr Waterer said a speech on the domestic economy by Reserve Bank of Australia governor Glenn Stevens would also be watched.

Mr Stevens is speaking to the Anika Foundation luncheon in Sydney on Tuesday.

Meanwhile, Australian bond prices were lower at noon.

At 12.00 (AEST) on Tuesday, the September 10-year bond futures contract was trading at 97.300 (implying a yield of 2.700 per cent), down from 97.305 (2.695 per cent.)

The September three-year bond futures contract was trading at 97.880 (2.120 per cent), down from 97.900 (2.100 per cent).