Dollar in the doldrums over Cyprus
The dollar was trading at US104.22¢, down from US104.68¢ on Wednesday. During the local session, the Aussie peaked at a four-month high against the euro of 82.23 cents.
Forex.com analyst Chris Tedder said investors were moving into safer assets ahead of the weekend.
"It's just a toxic cocktail for the Aussie at the moment," he said. "The direction is set by the sentiment being hit by concerns over Italy and fear of what's going to happen when Cyprus reopens its banks."
Banks in Cyprus were due to reopen on Thursday for the first time in almost two weeks after the government secured a bailout to prevent the collapse of its financial system.
In Italy, centre-left leader Pier Luigi Bersani's is struggling to form a new government following the unclear February election result.
The Reserve Bank board will meet next week and is expected to keep the cash rate at 3 per cent. There is an expectation that RBA governor Glenn Stevens might not be as keen to cut the cash rate as he once was.
"We're not expecting a whole lot on the rates decision," Mr Tedder said. "The focus is going to be on what's happening in Europe, and Cyprus and Italy in particular."
Meanwhile, Australian bond futures prices rose.
JP Morgan interest rate strategist Sally Auld said concerns about the knock-on effects of the Cyprus banking crisis would continue to be the main driver for markets.
"They are also looking at countries like Malta and Luxembourg that have very enlarged banking systems relative to the size of their economy, and asking questions about those," she said.
The June 10-year bond futures contract was trading at 96.570 (implying a yield of 3.430 per cent), up from 96.470 (3.530 per cent) on Wednesday. The three-year contract was at 97.130 (2.870 per cent), up from 97.020 (2.980 per cent).
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The Australian dollar fell amid investor nervousness about events in Europe — especially the Cyprus banking crisis and political uncertainty in Italy — which pushed traders into safer assets and weakened the Aussie.
The Aussie was trading at US104.22¢, down from US104.68¢ the previous day, and during the local session it hit a four‑month high against the euro of 82.23 cents.
Concerns about Cyprus — including the reopening of banks after a near two‑week closure following a bailout — pushed investors toward safe‑haven assets, weighing on the Australian dollar and influencing bond and futures markets.
Unclear election results in Italy and difficulty forming a new government added to risk‑off sentiment; analysts said fears about Italy, along with Cyprus, helped set the direction for a weaker Aussie.
Forex.com analyst Chris Tedder described the situation as a "toxic cocktail" for the Aussie, noting investors were moving into safer assets before the weekend. JP Morgan strategist Sally Auld said knock‑on effects from Cyprus would continue to be a main market driver.
The RBA board was due to meet next week and was expected to keep the cash rate at 3 per cent. The article noted there was some expectation that Governor Glenn Stevens might be less keen to cut the rate than previously.
June 10‑year bond futures were trading at 96.570 (implying a yield of 3.430%), up from 96.470 (3.530%) on Wednesday. The three‑year contract was at 97.130 (2.870%), up from 97.020 (2.980%).
The article highlights that investors should watch developments in Europe — especially Cyprus bank reopenings and Italy's political situation — and the upcoming RBA meeting, since these were expected to drive currency and bond market moves.
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