Dollar in the doldrums over Cyprus

The Australian dollar was almost half of a cent lower on Thursday amid nervousness about events in Cyprus and Italy over the Easter weekend.

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).