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Aussie dollar falls further on fears of Euro debt contagion

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The Australian dollar fell about half a US cent after comments from German Chancellor Angela Merkel raised concerns that Greece’s debt problems could spread to other economies.

CMC Markets foreign exchange dealer Tim Waterer said the Australian dollar did well to start the trading day above 98 US cents.

The currency lost some steam towards midday after German Chancellor Angela Merkel said European leaders must create a “barrier” around Greece to stop its debt problems from spreading, Mr Waterer said.

Chancellor Merkel’s comments saw the euro lose more than one US cent in the morning session and has weakened momentum for most risk-assets.

At 1200 (AEST), the Australian dollar was trading at 97.87 US cents, down from 98.34 cents on Friday.

Last week, $71 billion was wiped off the Australian equity market and the local currency plunged 5.6 per cent to a 10-month low, as traders worried that world economies could again fall into a recession.

“She was certainly justified in what she was saying but her comments did little to sway investors to recommence buying,” he said.

There was no major local economic data due on Monday.

Mr Waterer said traders were more focused on data from overseas, with Germany’s IFO Institute releasing its business climate index and US new home sales due overnight.

The next focus will come on Tuesday, when the US releases consumer confidence data for September, he said.

“If those data releases came in on the encouraging side, that would be a godsend for risk assets but that could be a tall order at the moment.

“Those data releases and how they affect sentiment will determine whether by the end of the week the Aussie is heading towards parity or if it’s heading lower to 95 US cents.”

Mr Waterer expects the domestic currency to trade between 97.50 US cents and 98.50 range US cents for the remainder of the local session.

Since 0700 (AEST), the currency has traded between 97.53 US cents and 98.38 US cents.

Meanwhile, Australian bonds were marginally weaker at noon.

At 1200 AEST on Monday, the December 10-year bond futures contract was trading at 95.960 (implying a yield of 4.040 per cent), down slightly from 95.965 (4.035 per cent) on Friday.

The December three-year bond futures contract was at 96.540 (3.460 per cent), down from 96.560 (3.440 per cent).