$A opens lower on Portugal's woes

The Australian dollar opened almost a cent lower on Wednesday after losing ground against the US dollar following weak demand at a US bond auction and a credit rating downgrade for Portugal.

At 0700 AEDT, the Australian dollar was trading at $US0.9080/83 down 0.83 per cent from Wednesday's close of $US0.9153/56.

During the offshore session, the local unit moved between $US0.9074 and $US0.9179.

"Really, it was a case of the Australian dollar being dragged lower by the stronger US dollar," Bank of New Zealand currency strategist Mike Jones said.

US Treasuries, the euro, stocks and commodities slid as a downgrade of Portugal's debt and weaker-than-forecast demand in a US bond auction added to concern that governments will struggle to fund swelling deficits.

Mr Jones said the stronger US dollar had two supports -- a weaker euro, and higher US interest rates.

"We had a slightly weaker euro which boosted the US dollar and also a surge in US interest rates, so both of those factors acted to push the US dollar higher and that dragged on most of the major currencies overnight, dragging the Aussie down from about US$0.9150 to $0.9080," he said.

But the Australian dollar reached new highs against the euro, holding above 68 euro cents in overnight trade.

Fitch Ratings lowered Portugal's credit rating from AA to AA-, leading to a weaker euro.

The rating firm said the country's recovery would be slower than in other eurozone countries.

Fitch says that could hurt Portugal's ability to repay its debt.

"The Europe data was really good but the markets are really in a mood to sell the euro as we see ongoing wrangling on what to do about Greece," Mr Jones said.

"That downgrade of Portugal just added fuel to the fire."

The yield on the 10-year Treasury note rose to 3.85 per cent, the highest since January.

Mr Jones said the surge was driven by ongoing supply of US government debt and signs that it is outstripping demand.

"Those higher US yields increased the yield allure of the US dollar."

Mr Jones forecast the Australian dollar would come under continued pressure ahead of the release of New Zealand GDP figures and a speech by RBA Assistant Governor Philip Lowe on Thursday, which is expected to be bullish.

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