THE Australian dollar has shed almost 1.5 US cents after weak US economic data and poor local retail sales figures.
At 5pm (AEST), it was trading at 107.39 US cents, down from 108.90 cents yesterday.
Since 7am (AEST), the local unit moved between 106.80 US cents and 107.85 US cents, according to data.
The Australian dollar dropped sharply after the release of retail spending figures showed a 0.1 per cent fall in spending in June.
It was trading at 107.40 US cents prior to the data release at 11.30am (AEST), but fell to 106.88 within seconds.
The local unit has fallen steadily since yesterday, when the Reserve Bank of Australia said it would keep the interest rate at 4.75 per cent.
It hit a peak of 110.81 US cents on July 27, its highest level since the fixed exchange rate era ended with its float in December 1983
CMC Markets senior FX dealer Tim Waterer said today's negative retail data compounded poor market confidence.
"The dollar started off the day fairly weak following the steep sell-off on Wall St the night before,'' he said.
"Then we had the disappointing retail sales figures ... that triggered a larger move to the downside.
"This was not what the doctor ordered and the Australian dollar has fallen further out of favour on that bad news.''
Mr Waterer said the local dollar recovered in the afternoon.
"When it was below 107 (US cents) it was beginning to look a little oversold and now it has crept back (towards) 107.50 in afternoon trade,'' he said.
He said offshore data would determine how the Australian dollar traded over the next few days.
The US will release private jobs figures on Wednesday night (AEST) and broader non-farm payroll on Friday.
At 5pm (AEST), the Australian dollar was at 82.91 Japanese yen, down from yesterday's close of 84.09 yen, and at 75.58 euro cents, down from 76.75 euro cents.
Meanwhile, the Australian bond market closed firmer on fears the US could be sinking back into recession, and following the weaker-than-expected local retail data.
At 4.30pm (AEST), the September 10-year bond futures contract was trading at 95.365 (implying a yield of 4.635 per cent), up from 95.265 (4.735 per cent) yesterday.
The September three-year bond futures contract was at 95.970 (4.030 per cent), up from 95.770 (4.230 per cent).
Capital Markets fixed interest strategist Su-Lin Ong said downbeat US economic data buoyed the local market.
The data showed consumer spending in the US dropped 0.2 per cent in June, the first decline since September 2009, and the latest in a line of weak US economic data.
The US government is also about to cut spending - a further drag on economic growth - as part of the deal made by Washington lawmakers to lift the US debt ceiling.
"The rally in the US continues, and we are taking direction from that,'' Ms Ong said.
"The fears there are another financial meltdown with knock on impacts to activity globally.''
Ms Ong said the RBA's decision on Tuesday to keep rates steady at 4.75 per cent had also contributed to the rally.
The RBA's trade weighted index was at 77.0, down from 78.1 yesterday.
