The Australian dollar opened one per cent lower today after a credit ratings downgrade of Greece and Portugal raised investor worries about the ability of the eurozone nations to repay their sovereign debt.
At 0700 AEST, the Australian dollar was trading at $US0.9154/56, down 1.02 per cent from Tuesday's close of $US0.9247/50. From 1700 AEST on Tuesday, the local unit traded between $US0.9137 and $US0.9260.
High-yielding assets such as equities and commodity-driven currencies weakened after international ratings agency, Standard & Poor's, downgraded the government debt of Greece and Portugal.
Investors are concerned that those nations' problems could spread across Europe and stifle economic growth.
Greece's credit rating has been downgraded to junk status, indicating debt holders have an average chance of between 30 to 50 per cent of their money being repaid following a debt restructuring or default.
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Standard & Poor's downgraded its credit rating on Portugal to A- amid mounting concerns about the nation's ability to manage its debt.
A ratings agency downgrades a nation's credit rating when they assess it a higher risk for investment.
Equity markets slid on the reports, with the London stock market closing down 2.61 per cent, while The Dow Jones Industrial Average in the US fell 1.90 per cent.
"We have had a pretty eventful North American session after S&P downgraded Greece and Portugal sovereign bonds, which created a minor panic in markets," corporate dealer with online currency trader OzForex, Darren Richardson said from Toronto.
"That is the main focus and pushed everyone to risk aversion trades - buying US dollars, buying gold, and selling high yielding assets and high-risk currencies like the Aussie dollar."
Economic events due on Wednesday include the consumer price indices (CPI) from the Australian Bureau of Statistics (ABS) for the March quarter.
An AAP survey of 13 economists found the median forecast was for headline CPI to have risen by 0.8 per cent in the March quarter for an annual pace of 2.8 per cent.
This compares with a headline CPI of 0.5 per cent in the December quarter, for an annual rate of 2.1 per cent.
The AAP survey also showed underlying inflation is expected to have risen by 0.7 per cent in the March quarter, for an annual pace of 3.0 per cent in the year to March 31, down from 3.4 in the year to the end of December.
For the domestic session on Wednesday, Mr Richardson forecast the Australian dollar to trade between $US0.9100 and $US0.9200.
Mr Richardson said the negative sentiment following the ratings downgrade would weigh on markets at the start of the Asian session, but traders would look at the CPI report "very closely".
"If we see a higher than expected CPI figure, that will signal to the market that interest rate increases are still on the RBA's plan, and that will support the Aussie dollar," he said.
