The Australian dollar fell to multi-week lows against major currencies on Friday as investors fled riskier trades and higher-yielding currencies, unwinding leveraged positions funded in US dollars and yen.
Investors were unnerved by persistent worries about the fiscal health of Greece and other smaller euro zone countries.
That hurt the euro, dragged down Asian stocks and the overall downbeat mood also weighed on the Aussie.
At the local close, the dollar was trading at $US0.8893 after touching a one-month low of $US0.8884. It is down a cent for the week and well off last week's high of $US0.9263.
The dollar also hit a six-week low against the yen at 79.67 yen, with investors seeking refuge in the safe-haven yen as stocks fell globally. The Aussie lost nearly 4.0 per cent in January.
But John Kyriakopoulos, a currency strategist at National Australia Bank, said risk aversion among investors may not last.
"Through most of the week, US economic data has been disappointing. We need to see better news on the US economy, a circuit breaker to risk aversion," Kyriakopoulos said.
The first relief could come as early as late Friday when the United States releases fourth-quarter gross domestic product data.
The median forecast is for growth to quicken to an annual rate of 4.6 per cent, from 2.2 per cent in the third quarter, mainly due to inventory rebuilding.
But more importantly, Kyriakopoulos said he sees a potential European Union bailout of Greece, which is hurdled by heavy public debt, and Chinese policy tightening, as good news for risk appetite.
Markets will also focus next week on the Reserve Bank of Australia's (RBA) policy decision on Tuesday. A 25-basis-point rate hike to 4 per cent is widely expected as the RBA reins in stimulus on the back of rising inflation, a revival in employment and robust consumption.
The re-appointment of Federal Reserve cChairman Ben Bernanke for a second term earlier on Friday by the US Senate may also be good news for risk appetite at the margin, but with US stocks sinking, investors are set to remain cautious.
Aussie government bonds were up as stocks fell. Three-year bond futuresup 0.140 points at 95.130, while the ten-year contract gained 0.090 points at 94.550.
Reuters
