The Australian dollar closed at a four-month-low on Friday as concerns about sovereign debt in several European nations dampened demand for high-yielding assets.
At 1700 AEDT, the Australian dollar was trading at $US0.8668/72, down 1.63 per cent from Thursday's close of $US0.8813/15.
From 0700 AEDT, the local unit had traded between $US0.8643 and $US0.8694.
It was the lowest close for the Australian currency since September 28 last year, when it ended at $US0.8642/44.
Global financial markets slumped on increasing doubts about the ability of the governments in Greece, Spain and Portugal to repay their debts.
US equities closed weaker, with the Dow Jones Industrial Average down 2.61 on Thursday.
The local sharemarket followed suit, with Australia's broad based All Ordinaries index closing down 2.4 per cent to end at a three-month low.
Royal Bank of Scotland foreign exchange strategist Greg Gibbs said investor sentiment to risk weakened on fears about sovereign debts.
"It broke down significantly overnight during US trading," Mr Gibbs said.
"Sovereign risk concerns were probably at the forefront in the market's mind.
"A US dollar rebound generally filtered through to commodity prices, and triggering a need to square up long positions that still exist on the Aussie (dollar)."
Mr Gibbs said the release of the Reserve Bank of Australia's (RBA) quarterly statement on monetary policy did provide the domestic currency with much support.
The RBA upwardly revised most of its inflation and gross domestic product (GDP) growth forecasts, saying domestic demand, the jobs market and business investment were all likely to strengthen.
"The market is more concerned about those global risk factors at the moment," he said.
In the upcoming Friday offshore session, the US Department of Labor is due to release its non-farm payrolls report for January.
Markets have forecast the US economy to add a total of 20,000 jobs in January, from a loss of 85,000 jobs the previous month.
The US unemployment rate is expected to remain at 10 per cent.
Mr Gibbs forecasts the Australian dollar to trade between $US0.8500 and $US0.8730 during Friday's offshore session.
At 1600 AEDT, the RBA's trade-weighted index (TWI) was at 67.7 points, down from Wednesday's close of 68.7.
