The Australian dollar opened below 99 US cents as another rally on Wall Street boosted the greenback.
At 7am AEST, the local currency was trading at 98.92 US cents, down from yesterday’s local close of 99.80 US cents, marking the weakest start to a session in 11 months.
HiFX senior dealer Dan Bell said a jump in the Dow Jones Industrial Average to a record 15,215.25, buoyed the greenback, even though stronger risk sentiment has traditionally been a boon for the Australian dollar.
“The correlation between the US stock market and the Australian dollar has been breaking down over the last few months,'' he said. “Investors are treating positive news in the US as ultimately positive for the US economy, which is actually supporting the US dollar and pushing up US bond yields.''
US shares rose after Appaloosa Management hedge fund group boss David Tepper told CNBC the market could still soar higher.
With the greenback gaining strength, Mr Bell said, the Australian dollar was likely to hit 95 US cents in coming months, before falling to 85 US cents from next year.
“In the big scheme of things, the Australian dollar is still overvalued.''
Traders did not appear phased by Treasurer Wayne Swan's budget for 2013/14, which delivered a deficit of $18 billion for 2013/14, with a surplus forecast for 2016/17.
“That was pretty much as expected. I don't think it's given anyone too much of a surprise,” Mr Bell said.