Global gloom weighs on dollar

The Australian dollar is slightly lower on a continuing negative sentiment in Europe.

In late local trade, the dollar was buying 97.64 US cents, down fractionally from 97.73 cents on Thursday.

CMC markets chief market strategist Michael McCarthy said the Australian dollar had resisted Thursday’s lows, following fresh commentary suggesting that Greece might not leave the eurozone.

‘‘We had comments from the Italian Prime Minister (Mario) Monti, who raised two important issues that hadn’t been raised in political circles,’’ he said. ‘‘The first is the issuance of euro bonds, and the other is the potential for moral hazard in Greece if they’re allowed to walk away from their agreements.’’

Mr McCarthy said that Germany needed to acknowledge the economic benefits which the European currency had given them, and their obligation to other eurozone members.

‘‘They’ve been huge beneficiaries - with exchange rate and interest rate environments that are much lower than they otherwise would have had,’’ he said.

‘‘So because they’re the ones with the cash and the capacity to fix these problems, they must come into the stable - and at this stage they’re resisting.’’

A weak reading in China’s HSBC flash purchasing managers’ index (PMI) on Thursday had not worried the market unduly, Mr McCarthy said.

‘‘The flash PMI and HSBC PMI have undershot the official PMI for the past few months, so markets weren’t too concerned with that reading,’’ he said.

With so much negativity already built into the dollar, traders see room for a corrective bounce in the short-term.

"(The negativity) looks a bit overdone and we could see a move higher, perhaps towards parity," said Greg Gibbs, a strategist at Royal Bank of Scotland.

In the longer-term, he sees the Aussie climbing back to $1.0500 by year-end, believing that a rebound in Chinese growth would spur demand for the commodity currency.

The PMI reading was 48.7 in May, down slightly from 49.3 in April.

AAP, Reuters