The Australian dollar fell one US cent and was still trading near six week lows on persistent fears surrounding debt crises in Europe and the US.
OZForex foreign exchange dealer Carly Pickering said currency traders were making less risky investments due mainly to concerns about Europe’s rising debt levels.
“The politicians are not willing to make the big decisions that the technocrat leaders, for example in Italy, need to make to endorse the austerity measures and to get their budgets under control,” Ms Pickering said.
“The markets are still reeling from that a little bit and (European) bond yields are still higher.”
Spanish government borrowing costs rose overnight, with the yield or rate of return earnt by holders of benchmark 10-year government bonds rising to 6.514 per cent in evening trading, from 6.345 per cent at the close on Friday.
At 1200 AEDT on Tuesday, the Australian dollar was trading at 98.67 US cents, down from 99.69 US cents on Monday’s afternoon.
Overnight, the currency traded as low as 98.09 US cents – its lowest level since October 10.
Meanwhile, a US congress “supercommittee” said on Monday (US time) that it failed to reach a deal to rein in rising deficits.
The move confirmed widespread expectations that the 12-member bipartisan committee would fail in its mission to cut US deficits by $US1.2 trillion ($A1.22 trillion) over 10 years amid political feuds over tax hikes on the rich and cuts to social spending.
Ms Pickering said the news hampered risk sentiment on currency markets and weakened the Australian dollar.
She said expected the domestic unit to soften further in the coming weeks as foreign exchange companies and hedge funds square up their positions leading into the Christmas period.
No major local economic data is due for release on Tuesday.
Australian bonds rallied to levels last seen during the height of the global financial crisis (GFC) at noon on Tuesday.
At 1200 AEDT on Tuesday, the December three-year bond futures contract was at 96.880 (implying a yield of 3.120 per cent), up from 96.790 (3.210 per cent) on Monday.
The December 10-year bond futures contract was at 96.020 (3.980 per cent), up from 95.955 (4.045 per cent) on Monday.
Both three- and 10-year bond futures are now trading close to their highest levels since March 2009.
