Dollar nurses steep overnight losses

The Australian dollar nursed losses today, having suffered steep declines overnight as optimism dimmed on the euro zone after Germany's finance minister warned against hopes for a quick fix to Europe's debt problem.

The dollar, which dropped more than 2 full cents to a low of $US1.0148 overnight, closed locally at $US1.0203. On Monday, it hit a high around $US1.0372, up some 10 per cent from a one-year trough of $US0.9388 on October 4.

"Given the speed of the move up last week, it should be reasonably supported on dips," said Paul Kammel, head of client management at Travelex.

"It just depends how severe the news is from offshore. The big event into the weekend is what Europe comes out with in terms of the stabilisation package."

Hopes had mounted that European leaders would detail a comprehensive plan to tackle the region's debt crisis and recapitalise their banks. But Germany on Monday warned that a summit of EU leaders on Sunday would not produce a miracle cure for the euro zone's sovereign debt crisis.

Australia's central bank also noted increasing uncertainty about both the prospects for resolving the euro zone's debt problems and the outlook for global growth in minutes of its October meeting.

The minutes showed the RBA was getting less worried about domestic inflation, which could offer scope for a cut in rates if needed.

Interbank futures imply a two-in-three chance of a 25 basis-point rate cut at the upcoming policy meeting on November 1.

Australian debt futures rose, recouping almost all of the previous day's losses. The three-year contract climbed 0.07 points to 96.140, while the 10-year gained 0.080 points to 95.475.

There was some relief that a flood of Chinese data suggested the world's second biggest economy was on track for a soft landing. China is Australia's largest export market and news about its economy can move the Aussie dollar.