The Australian dollar slipped below $US0.78 as market sentiment was hit by a news report that North Korea conducted a nuclear test Monday, dampening demand for riskier assets.
The South Korean won weakened on news of the nuclear test, and the Kospi stock index extended earlier losses to fall over 3.5 per cent.
The dollar fell to the day's low of $US0.7781, off an offshore high of $US0.7867, and compared to $US0.7778 seen here Friday.
Easing in selling pressure of the US dollar also contributed to a slight pull-back in Aussie. The dollar index was modestly higher at 0.1 per cent.
Market sentiment was fragile even before news of the nuclear test, with Asian stock markets moderately weaker.
The local dollar retreated against the yen as well to 73.57 yen, from the day's high of 74.13, compared to Friday's 73.31.
Aussie longer-term bond futures fell, tracking losses in US Treasuries, ahead of this week's massive $US101-billion sale of two-year, five-year, and seven-year Treasury notes. Ten-year futures fell 0.055 points at 94.76.
Before news of the test, Easy Forex senior dealer Francisco Solar said the Australian dollar was dragged lower by some weakness in equity markets, particularly in Shanghai, which opened more than one per cent down after China announced it would resume initial public offerings.
"That just caused a little bit of a pullback in the ASX this morning as well, which is the reason why the Aussie is just having a look below 78 once again,'' Mr Solar said.
"It's been a very quiet morning.''
Mr Solar said it was not surprising the currency was giving up some ground, given the Australian dollar's appreciation over the past few weeks.
"The Aussie, at lofty highs, doesn't tend to move in a straight line,'' Mr Solar said.
"This whippy action is something that is very much inherent in the price of the Aussie.''
The local unit has climbed about six US cents this month.
Mr Solar said the Australian dollar would find support at 77.6 US cents during the remainder of the Asian trading day, but would struggle to break through the 78.4-US-cent resistance level.
The US and UK markets will be closed for a public holiday overnight.
But Mr Solar said a key German business survey - the IFO - would provide some direction for currency markets.
"Although there is expectation of lower volumes coming through, this IFO number does tend to move the markets quite a bit,'' Mr Solar said.
"And considering there will be less liquidity, you might have some exaggerated moves.''
