The dollar closed 1.1 per cent weaker today as a strong rally on the local share market failed to convince traders to back the high-yielding currency.
Dovish minutes from the Reserve Bank of Australia's (RBA) October meeting, released today, put pressure on the currency in late morning trade as the central bank reiterated its forecasts for slowing world growth and falling inflation.
At 17.00( AEDT), the Australian dollar was trading at $US0.6914/19, down from yesterday's close of $US0.6993/96.
The Australian dollar faced heavy selling pressure in the final hour of the local session as traders in London dumped high-yielding currencies even though risk appetite had improved.
"We have a day every now and then, there's not necessarily method to the madness,'' Commonwealth Bank of Australia currency strategist Joseph Capurso said.
A rally of almost 4 per cent on the Australian share market, which in normal circumstances would boost the local currency, failed to lift the Australian dollar as traders dumped other high-yielding currencies like the New Zealand dollar.
Currency traders appeared to overlook RBA governor Glenn Stevens' speech in Sydney today which said the risk of a global financial catastrophe had declined as governments worked to solve the crisis.
Earlier in the day, the Australian dollar fell from $US0.7020 to 0.6963 after the minutes of the RBA's October 7 meeting failed to dissuade financial markets from expecting rate cuts in November and December.
Custom House Global Foreign Exchange corporate risk manager Charles Wiggins said the Australian dollar fell initially after the market interpreted the minutes as supporting the case for further interest rate cuts.
Mr Capurso that for the rest of the session, traders had a subdued reaction to the RBA minutes as financial markets pared back their expectations for aggressive interest rate cuts.
"The minutes were like an eternity ago,'' he said.
"Since then, we've had positive signs markets are moving in the right direction.''
The RBA board minutes said inflation would recede rapidly in 2009 as the Australian economy slowed. This expectation was used to justify slashing the overnight cash rate to 6 per cent, from 7 per cent.
