Traders were also jolted by news that a large Chinese state-run bank has suspended trading of foreign exchange swaps with several European banks, people familiar with the situation told Dow Jones Newswires.
At 4.40pm AEST, the Australian dollar was at $US1.0195, down from $US1.0230 late yesterday. Against the Japanese yen, the local currency was down to Y78.035 from Y78.695.
Analysts said the outcome of talks between Greece and its lenders from the International Monetary Fund and the European Union will now be key to near-term direction for currency traders, but any growing worries over Italy will also be a major driver for sentiment.
"Europe is really the only game in town. Today it is a question of whether or not Greece will meet due coupon payments - we think they will continue to do so through September, leaving default until October," said Roland Randall an economist at TD Securities.
Also in view is the beginning of the Federal Open Market Committee's meeting and the ZEW indicator in Germany.
The Australian dollar was also weaker after the release of minutes from the central bank's September meeting, which said market pricing for large rate cuts over the coming year looks to be skewed by technical factors.
Economists said it's more likely the Reserve Bank of Australia will stay on hold for some time before any easing.
"We think the case for a more neutral stance of policy is strengthening, but the RBA is likely to take more convincing. In particular, we need to see a shift in its assessment of the balance of risks over the inflation outlook. This, we think, largely hinges on the state of the labour market, and further sustained labour market slack will be needed," said Su-Lin Ong, an economist at RBC Capital Markets.
