The Australian dollar nursed heavy losses against the yen and US dollar on Friday amid fresh uncertainty that a deal can be done to avert the US "fiscal cliff", putting them on track to end the week sharply lower.

The dollar slipped 0.3 per cent on the day to $US1.0447, away from a three-month peak of $US1.0585 struck last week.

It was on target to show a 1 per cent loss this week, weighed by deepening concerns the United States government will not be able to avert automatic spending cuts and tax increases set to start in January.

The latest flare up in risk aversion sent investors scrambling to safe havens like bonds, US dollar and yen with market reaction exacerbated by thin trading due to year-end celebrations.

"The big news was the collapse of US fiscal negotiations and risk sentiment was hit," said Alvin Pontoh, a strategist at TD Securities in Singapore.

He said investors are likely to remain cautious, even more so now following recent hefty gains across risk assets.

"Maybe now is the time for a correction," he said.

Immediate support was seen at $US1.0420, the 38.2 per cent of the Oct-Dec climb. Resistance was found at $US1.0535, the Dec 19 high.

The dollar was badly hit against the safe-haven yen, skidding around 1 per cent in the session.

The Aussie fell to 87.66, a fair way off a 19-month high of 89.01 hit on Monday, though it was still up around 12 per cent for the year

The dollar was steady against the euro, though still near multi-week lows.

The common currency made sharp gains recently as investors squared positions before the end of the year.

The euro fetched $1.2628, not far from a two-month high of $1.2681 hit on Wednesday, on track to post a 1.3 per cent gain this week.

Charts of moving averages point for more upside with major resistance found at the Oct 23 peak of $1.2673.

Risk aversion sent Australian government bond futures higher, with the three-year bond contract up 0.03 points to 97.280, while the 10-year contract also added 0.03 points to 96.695.

Reuters