AAP

The Australian dollar is drifting towards the $US1.00 mark as fear grips global financial markets.

The dollar was trading at $US1.0057 at 1500 AEST on Wednesday afternoon, about one US cent lower than on Tuesday.

Westpac chief currency strategist Robert Rennie said fears of political chaos and fresh financial crises in Europe had battered global markets this week.

He said the Australian dollar, seen by traders as a barometer of global investor confidence, had been one of the most prominent victims of the current climate of fear.

The downturn in sentiment, combined with lower interest rates at home, was likely to send the Australian dollar below parity, possibly within days.

"We do think that we are going to spend an extended period below parity," he said.

The dollar last traded below $US1 in December 2011.

In February it was hovering around $US1.08, not far off its all-time peak of $US1.10.

Mr Rennie said recent elections in France and Greece had thrown Europe's austerity program into doubt.

"What you are seeing across Europe is the rise of anti-European Union sentiment."

In France, the presidential election victory of socialist Francois Hollande has been seen as a threat to the political consensus in the Europe Union which, so far, has prevented the crippling debt levels of member nations from spiralling into a global economic downturn.

Meanwhile, in Greece, the ruling coalition lost power at the weekend amid strong voter discontent at austerity measures imposed in order to secure financial support from the EU.

Mr Rennie said the election results meant it was unlikely any party or coalition would be able to form government, which, in turn put the Greece's austerity program, and its membership in the euro zone, at risk.

"Any decision to reduce ties with Europe would have implications for investor confidence in Europe," he said.