Dollar mostly recovers overnight losses

DOLLAR slightly lower at noon, after mostly recovering its overnight losses sparked by further European debt worries.

THE dollar was trading slightly lower at noon, after mostly recovering its overnight losses sparked by further European debt worries.

At 12.00pm (AEST), it was trading at 105.32 US cents, down from 105.48 cents on Monday.

Since 7.00am (AEST), the local dollar traded between 104.80 US cents and 105.38 cents.

It fell almost half a US cent in overnight trade as concerns over European government debt intensified 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.

Nomura head of foreign exchange Kurt Magnus said the Australian dollar bounced back during the local session

"It's as though this market was, and is, prepared for bad news on Greece," he said.

"We saw a lot of that last week when we saw a long session of three or four days of unwinding of long euro positions, so the market did buy US dollars in anticipation of the story around Greece and the downgrading of Italy.

"I'm not getting carried away with it because the market is not getting carried away with it.

"I'm not sure whether you believe the sovereign (debt) story will be a continuance or whether it was what people were expecting and this was just a knee-jerk reaction."

Mr Magnus said the Australian dollar should be well supported against the euro ahead of the next Reserve Bank of Australia (RBA) board meeting.

"My view is that ahead of the RBA meeting on June 7 is that the Aussie dollar should be supported in anticipation of a rate hike.

"Am I bearish (on the) Aussie? No I'm not. Am I bearish euro? I probably am, short term, because I don't think any of this restructuring of the Greek debt is going to be good news for the euro, for the ECB (European Central Bank), but I think Aussie-euro should pick up speed and do well.

Mr Magnus expects the Australian dollar to trade in the same range on Tuesday afternoon as it during the morning.

He said the local unit would go lower as markets in London opened, but should stay above 104.40 US cents.