$A lower on euro zone concerns and data

Caroline Smith February 23, 2012

The Australian dollar is lower as concerns grow around the Greek bailout and growth in Europe.

At 1700 AEDT on Thursday, the local unit was trading at 106.47 US cents, down from 106.71 cents on Wednesday.

Since 0700 AEDT on Thursday, the local unit traded between 105.98 US cents and 106.53 cents.

St George economist Janu Chan said the dollar's performance indicated growing concerns about the fortunes of euro zone economies, particularly Greece.

"Weak sentiment has been weighing on the Aussie, and that is largely in regards to worries about Greece and Europe," she said.

"The optimism that we saw previously with the Greek deal has faded, and we saw last night (ratings agency) Fitch is downgrading Greece's sovereign debt grading.

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"I think investors have come to the conclusion that concerns still remain for Greece and the region, namely whether the austerity measures can be passed, and whether Greece faces quite weak growth prospects."

On Tuesday, it was announced that euro zone finance ministers had reached a deal to secure 130 billion euros ($A159.7 billion) in a debt bailout package for Greece.

Ms Chan said that weak manufacturing data released overnight in Europe had also kept sentiment down.

The preliminary Markit purchasing managers index (PMI) for the region showed a fall to 49.7 in February from 50.4 in January.

There was also contraction in a separate factory PMI for the euro zone, although activity increased to a reading of 49 for February from 48.8 in January.

Ms Chan said concerns about Europe would continue to shape the Australian dollar's movements overnight.

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At 1700 AEDT, the Australian dollar was at 85.39 Japanese yen, down from Wednesday's 85.40 yen, and at 80.31 euro cents, down from 80.62 cents.

The latter was the local currency's lowest cross with the euro since mid-January.

Meanwhile, Australian bond futures were higher on a quiet day in trading, despite questions about the leadership of the Australian Labor Party.

UBS interest rate strategist Matthew Johnson said Australia's domestic political turmoil had not weighed on the bond market.

He said investors remained confident about Australia's position regardless of who was leading the country.

"Both sides of politics in Australia have a commitment to fiscal discipline, the electorate has a commitment to fiscal discipline that's pretty clear to global investors," he said.

On Wednesday, Kevin Rudd announced he was resigning from his position as foreign minister, with a ballot for the Labor Party leadership to take place on Monday.

Mr Johnson said the minimal movement in bond prices was due to a lack of major economic data.

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