Dollar in retreat after overnight gains

DOLLAR back on a downward spiral, reversing solid gains made overnight, as markets continue to react to US Fed boss' statements.

Australian dollar

THE Australian dollar is back on a downward spiral, reversing solid gains made overnight, as markets continue to react to recent statements from US Federal Reserve Chairman Ben Bernanke.

The currency rose as high 97.50 US cents early today, up sharply from 96.23 US cents yesterday afternoon.

But by 12pm AEST the Australian dollar had retreated back to 96.65 US cents.

ForexCT head of research Steven Dooley said currency markets had been extremely volatile in the wake of Dr Bernanke's testimony to Congress yesterday morning (Australian time).

"There's just been so much volatility," he said. "I think the market hasn't been able to get its head around what Bernanke was trying to say."

In his testimony Dr Bernanke warned of the dangers of stopping the Fed's key stimulus program too soon, but later indicated the central bank could start to wind it back in the next few months.

Mr Dooley said the Australian dollar, which has lost around seven US cents since the start of May, could continue to fall over the next week.

"Our view is that we could go as low as 94 US cents," he said.

Meanwhile, Australian bond futures prices were lower at noon. At 12pm AEST today, the June 10-year bond futures contract was trading at 96.660 (implying a yield of 3.340 per cent), down from 96.705 (3.295 per cent) yesterday. The June three-year bond futures contract was at 97.380 (2.620 per cent), down from 97.410 (2.590 per cent).