Dollar lower after Spanish protests

THE Australian dollar is more than half a US cent lower after angry protests in Madrid reignited concerns about Europe's sovereign debt woes.

dollar

THE Australian dollar is more than half a US cent lower after angry protests in Madrid reignited concerns about Europe's sovereign debt woes.

At 12.00 AEST on Wednesday, the Australian dollar was trading at 103.70 US cents, down from 104.26 US cents on Tuesday.

Overnight, an estimated 6,000 demonstrators clashed with police in Madrid in a protest against further austerity measures to be unveiled in the Spanish government's 2013 budget on Thursday (European time).

Spain is trying to cut expenditure to bring its debt levels under control in the face of rising borrowing costs.

ForexCT head of research Steven Dooley said the riots added to a string of negative news from the euro zone, including a disagreement between France and Germany over a proposed banking union.

He said the news had taken some of the shine off a recent bout of optimism in the euro zone which followed the European Central Bank's announcement it was ready to help push down struggling member states' borrowing costs through bond purchases, if asked.

"I think it's generally part of a growing concern about Europe," Mr Dooley said.

Mr Dooley said speculation about October's Reserve Bank of Australia (RBA) interest rate decision would be the main driver of the local currency's movements for the rest of the week.

Most economists expect the RBA to keep the cash rate on hold at 3.5 per cent at its October 2 meeting, but futures markets are pricing in about a 60 per cent likelihood of rate cut.

Meanwhile, Australian bond futures prices were higher at noon.

At 12.00 AEST on Tuesday, the December 10-year bond futures contract was trading at 97.020 (implying a yield of 2.980 per cent), up from 96.935 (3.065 per cent) on Tuesday.

The December three-year bond futures contract was at 97.590 (2.410 per cent), up from 97.510 (2.490 per cent).