The Australian dollar, weighed by a steady interest rate outlook, hovered near multi-month lows against a range of currencies ahead of an expected warning on inflation from the European Central Bank (ECB) later on Thursday.
Hawkish rhetoric from ECB officials in recent weeks has led to speculation the euro-zone central bank will raise its key rate from 2 percent in December or early in 2006, ending two-and-a-half years of steady interest rates.
The Reserve Bank of Australia left its 5.5 percent cash rate unchanged earlier this week for the eighth consecutive month, while the US Federal Reserve pressed on with its tightening campaign. The Fed lifted its key rate to 4 percent, further eroding the Aussie dollar's once chunky yield advantage.
"The Australian dollar remains without friends," said John Kyriakopoulos, currency strategist at National Australia Bank.
He said selling against European currencies had been particularly severe ahead of the ECB board meeting as investors unwound carry trades, and he expected the Aussie to continue to struggle while its yield advantage remained under pressure.
Previously, the Aussie dollar was a major beneficiary of carry trades - transactions where investors borrow in a low-yield currency to invest in a high-yield currency.
Traders reported liquidation by US funds of Aussie dollar carry trades funded by the euro and Swiss franc.
One Aussie fetched $0.7413/18, compared with $0.7434/37 late here on Wednesday. It had touched a four-month low at $0.7398 overnight. The next big target is the 2005 low of $0.7365, struck on July 7.
The Aussie steadied against the euro after earlier slipping to a two-month low as investors focused on rate differentials in the lead-up to the ECB policy meeting.
The Aussie/euro cross rate found a floor around its 200-day moving average of 0.6134 euro. A break lower could confirm a significant downward trend.
The Aussie/Swiss franc cross rate breached its 200-day moving average of 0.9499 Swiss francs overnight, hitting a two-month low of 0.9462, and hovered around 0.9480 on Thursday.
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