Dollar slides on Spanish credit downgrade

THE Australian dollar was a little lower after Standard and Poor's cut Spain's credit rating.

THE Australian dollar was a little lower after Standard and Poor's cut Spain's credit rating.

At midday (AEDT) today, the Australian dollar was trading at 101.47 US cents, down from 101.89 cents on yesterday.

Since 7.00am (AEDT) today, the local unit traded between 101.96 US cents and 101.50 cents.

Standard & Poor's cut Spain's credit rating to "AA-" from "AA" with a negative outlook, saying the country's high unemployment and "the likely economic slowdown in Spain's main trading partners" prompted the downgrade.

The downgrade came at the end of a week in which the Australian dollar had gained four US cents on optimism there would be a resolution to the eurozone debt crisis.

CMC Markets foreign exchange dealer Tim Waterer said the downgrade caused some the of high-yielding currencies like the Australian dollar to come off the boil.

"The latest headline was the Spanish credit downgrade. That threw a spanner in the works as far as the ascent of risk assets this week," Mr Waterer said.

"That had the currency hovering around that 101.50 to 101 90 range.

"The market feels like it was indecisive in terms of how much of this downgrade was priced in. There was a kneejerk reaction and it has been rangebound since."

Mr Waterer was still positive about the Australian dollar.

"Particularly on the economic front, we've had a good run of economic data.

"The longer the run we can have without negative data coming out then that will help the Australian dollar's chances of remaining above the parity level."

Mr Waterer said he expected the Australian dollar to trade in a range between 101.25 US cents and 101.90 cents today afternoon.

Meanwhile, the Australian bond market was firmer at noon.

At 12.30pm (AEDT) today, the December 10-year bond futures contract was trading at 95.555 (implying a yield of 4.455 per cent), up from 95.510 (4.490 per cent) yesterday.

The December three-year bond futures contract was at 96.190 (3.810 per cent), up from 96.130 (3.870 per cent).