The Australian dollar extended losses towards recent lows on Monday as caution prevailed ahead of the US corporate earnings season, which analysts say could dampen hopes for a swift economic recovery.
At the local close, the dollar was trading at $US0.7733, down from $US0.7808 seen here late on Friday and the session's high of $US0.7825. It dropped to a five-week low of $US0.7723 on July 8.
Regional stocks were lower, as were commodities from metals to oil, as nervous investors took risk off the table waiting for more evidence of a recovery.
"The US company earnings season gets into full swing and we think there is room for a downside surprise," said Joseph Capurso, currency strategist at Commonwealth Bank.
US banking groups Citigroup, Goldman Sachs and JPMorgan are all due to report results this week, along with tech giants IBM and Google.
Analysts say as long as the global economy remains in a recession, profits across sectors are likely to take a hit. So appetite and demand for higher-yielding currencies like the Aussie is unlikely to make a strong comeback in the short term.
"We think a sub-par earnings season will see a rush to safe haven bonds and the U.S. dollar at the expense of other asset markets," Capurso added.
"The Aussie is now in a complex position with many signals turning down, but as yet without strong conviction," technical analysts at National Australia Bank said in a note. "On balance, risks are more for a downward correction."
They said the drop below the $US0.7975 level opened the Aussie up for a further move down to $US0.7575 and eventually to $US0.7150.
The Aussie fared worse against the yen, falling to 71.40 yen from 72.49 yen late here on Friday. It has now fallen more than 8 per cent on the Japanese currency in July as Japanese margin and retail investors, who were long in the Aussie, cut their positions.
Analysts at Westpac estimate Japanese margin traders and retail investors were long on the Aussie dollar by a record $US7.4 billion as of July 9, and a correction was probably due.
Aussie bond futures were higher as regional stocks declined and investors sought safe-haven assets. Three-year bond futures rose 0.05 points to 95.72, while ten-year bond futures added 0.07 points to 94.83.
Aussie 10-year yields were 203 basis points above US 10-year rates, having narrowed to around 199 points last week, the smallest spread in more than three weeks.
