Dollar drops on dour Dow

Stimulus taper on, off and now on again. The Fed again plays havoc with markets.

The Australian dollar has fallen close to 91 US cents after a member of the US Federal Reserve board of governors suggested American stimulus measures could be eased from September.

At 0700 AEST, the local unit was trading at 91.15 US cents, down from 92.62 cents on Friday.

Four hours earlier, it reached 91.13 US cents for the first time since late August 2010, after US Fed governor Jeremy Stein told a Council on Foreign Relations audience in New York that quantitative easing could be tapered from September.

"That got the market running more than anything else on Friday night and that pushed up the US dollar," Westpac New Zealand senior market strategist Imre Speizer said.

"He's a newer guy to the voting committee. We got a new name dropping the September word in there."

The Australian dollar, in turn, took a hit as traders re-assessed what a winding back of the US Fed's $US85 billion-a-month bond buying program would mean for the supply of the US currency.

"It's pushing up the US dollar, that's why the Aussie is falling," Mr Speizer said.

Domestically, most economists expect the Reserve Bank of Australia (RBA) to leave the cash rate on hold at 2.75 per cent when it meets on Tuesday.

Mr Speizer said that while traders would look for signs of a possible August rate cut when the central bank issued a statement, the Australian dollar wouldn't move too dramatically.

"That's priced in. The market has been sitting on the expectation that August is going to be the next month for the cut for some time," he said.

"The RBA would have to add some new information, or at least strengthen, the easing bias compared to what they had last month."

Meanwhile, Wall Street tumbled, with the Dow Jones Industrial Average losing 0.76 per cent, the broad-based S&P 500 shedding 0.43 per cent while the tech-rich Nasdaq Composite Index inched up 0.04 per cent.

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