Dollar still weak as global fears dominate

THE Australian dollar is down almost two US cents as global markets continue to be pessimistic about the US economy.

THE Australian dollar is down almost two US cents as global markets continue to be pessimistic about the US economy and European government debt woes.

At 12pm (AEST) today, the Australian dollar was trading at 104.91 US cents, down from 106.89 cents yesterday.

The currency has lost six US cents since Monday and is now trading below 105 US cents for the first time since June 23.

The US economy continues to post weak data and planned cuts in government spending, part of the agreement to raise the debt ceiling, has raised fears of a double dip recession.

Overnight, the European Central Bank (ECB) offered extra help to fight the eurozone debt crisis after a warning that countries such as Italy could now be threatened.

The Australian dollar initially dropped after the release of the Reserve Bank of Australia's (RBA) statement on monetary policy on Friday morning.

The RBA said sovereign debt problems in Greece and some other European countries had not stabilised completely, while hard decisions were still needed in the US to ensure fiscal sustainability in the long run.

This posed a "key downside risk" for the RBA's forecasts for Australia's economic growth and inflation.

It also comes after the RBA kept the cash rate steady at 4.75 per cent at its board meeting on Tuesday, citing concerns about uncertainty in global financial markets.

CMC Markets foreign exchange dealer Tim Waterer said the RBA statement was playing second fiddle to the broader global market events.

"(The Australian) did dip 20 points (after the RBA statement), now it's come back a bit but there quite a water under the bridge since the RBA sat down to set policy," he said.

"They did touch on the fact there are global growth concerns but that has escalated since that statement was put together."

US non-farm payrolls - the key indicator of the unemployment rate - will be released for July tonight (AEST).

Mr Waterer said the market would be keenly watching the release of this data.

"A poor result there means we could have another night of heavy selling in the US and, in essence, drag the Aussie dollar below 104.00 US cents," he said.

"On the flip side, if we get a good number, 100,000 new jobs, that would stem the bleeding in the markets and stabilise things and we could see the Aussie at 105.50 US cent."

Mr Waterer expects the Australian dollar to trade in a range between 104.20 US cents and 105.20 cents during the local session today.