Dollar slips on Greece setback

The Australian dollar lost ground against a broadly stronger US dollar on Wednesday after eurozone officials failed to reach an agreement about Greece, but hovered near seven-month highs against the yen.

The Australian dollar slipped to $US1.0352 from $US1.0384 in early trade, after Greece's international lenders failed for the second week running to agree on an aid package.

The news prompted investors to trim positions, with the euro skidding 0.5 per cent on the day, and dragged riskier assets lower.

Investors were awaiting HSBC China Flash PMI data on Thursday for further signs of recovery for the Chinese economy.

"Recent data is suggesting we may get a figure above 50 and that would be very good for the Aussie dollar and risk assets in general," said David Scutt, a trader at Arab Bank Australia.

He said the local currency could rise to $US1.0445, last week's peak, depending on the European market reaction to the Greek deal setback.


But the Antipodean hovered near seven-month highs against the yen as expectations for more aggressive Japanese monetary easing action kept the low-yielding currency under broad pressure.

The Aussie powered up to 85.07 yen, its highest since early April, before retreating to 84.70.

A sustained break above 84.80, an area of heavy barriers, would open the way to test this year's peak of 88.62 seen in March.

The yen has been falling sharply since last week after elections were called in Japan for next month, with the opposition leader, who is expected to win, pushing the Bank of Japan for more aggressive monetary stimulus.

Japanese interest rates have been chained near zero for over a decade, making Australia's cash rate of 3.25 per cent more appealing.

Australian government bond futures extended losses, with the three-year contract down 0.03 points at 97.380. The 10-year contract eased 0.045 points to 96.875, a fair way out from a one month peak of 97.080 hit on Monday.