At 12.00pm (AEST), the local currency was trading at $US0.8682/86, down from yesterday's close of $US0.8762/68.
During the morning, the unit moved between $US0.8733 and $US0.8681.
The dollar was under pressure during the overnight session after Wall Street closed weaker and despite encouraging US housing and unemployment figures.
The local currency started the local trading day at $US0.8722/27 at 7.00am (AEST) and drifted lower for most of the morning as Asian equity markets started the day in negative territory.
Custom House Global Foreign Exchange corporate risk manager Charles Wiggins said the Australian dollar was lower as market players remained uncertain about the extent of the economic recovery.
"We've seen quite a nice rally over the last few days, but does it need a little bit of a pullback and I think that's pretty much what we're seeing at the moment,'' Mr Wiggins said.
"Whether we have that U-shaped recovery or W-shaped recovery, I think there is still a lot of skepticism in the market.
"And that's obviously going to reflect back on the dollar.''
The dollar reached $US0.8775 today, its highest level since August 22 last year.
Mr Wiggins said while recent economic indicators pointed to the global economy coming out of recession, market players were still wary of taking on too much risk.
"People are still willing to take risks but to a certain extent,'' Mr Wiggins said.
"They just don't want to overextend those boundaries at the moment.
"All it takes is one negative piece of data to turn the market on it's head again.''
Mr Wiggins said he expected the dollar to remain under pressure for the rest of the Asian trading day, potentially breaking through the support level at $US0.8680.
"It's teetering on that major support,'' Mr Wiggins said.
The Reserve Bank's (RBA) trade weighted index (TWI) was at 67.5, down from yesterday's close of 68.0.
Meanwhile, the bond market was stronger.
The yield on the Commonwealth Government March 2019 bond was at 5.285 per cent, down from yesterday's close of 5.327 per cent, while the yield on the April 2012 bond was at 4.643 per cent, down from 4.692 per cent previously.
On the Sydney Futures Exchange, the December 10-year bond futures contract price was 94.660, up from yesterday's close of 94.615, while the December three-year bond futures contract was at 95.150, up from 95.100 previously.
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