European worries drive dollar below parity

THE dollar was lower at midday, trading below parity with the US dollar for the entire morning.

THE dollar was lower at midday, trading below parity with the US dollar for the entire morning.

It was the first time in a week the local unit had traded below the $US1 mark for the entire morning of the local session.

At midday (AEDT) today, the dollar was trading at US99.93c, down from yesterday's close of US100.44c.

Since 7am, the local unit traded between US99.53c and US99.97c.

The dollar fell below parity overnight amid fears that the eurozone debt and deficit crisis could be entering a dangerous second phase after Ireland's cost of borrowing hit record highs.

Colonial First State Global Asset Management head of investments markets research Stephen Halmarick said the European debt problems caused the local unit to move lower.

"I think we just got caught up in a combination of things," he said.

"The increase in the unemployment rate yesterday took the heat out of the Aussie dollar even though I thought it quite a strong report.

"And the euro has suffered pretty significantly overnight, so that's taken most currencies down including the Aussie dollar."

The unemployment rate rose to 5.4 per cent in October from 5.1 per cent in September, figures released yesterday showed.

Economists said a record participation rate drove up the October jobless figure and reduced the chances of a December interest rate rise.

Mr Halmarick was confident the dollar would again rise above the $US1 mark.

"Unless something dramatic happens in the G20 meeting (this weekend in South Korea), which I can't really envisage, I suspect the US dollar will resume its weakening trend.

Mr Halmarick said an interesting piece of local economic data for the market next week will be the labour price index for the September quarter, to be released on Wednesday.

"That could be quite critical if we get an acceleration in wages pressure, I think that may reinforce the need for further tightening (of interest rates)," he said.

Meanwhile, bonds were weaker at noon.

At midday on the ASX 24, the December 10-year bond futures contract was at 94.620 (implying a yield of 5.380 per cent), down from 94.645 (5.355 per cent) yesterday.

The December three-year bond futures contract was at 94.860 (5.140 per cent), down from 94.880 (5.120 per cent).