THE Australian dollar opened lower on today as the fallout from US President Barack Obama's proposed banking sector reforms weighed heavily on risk appetite.
At 7am AEDT, the Australian dollar was trading at $US0.9018/20, down from Friday's close of $US0.9028/34.
It was the unit's lowest open to a domestic session since January 5.
During the weekend offshore session, the local unit traded between $US0.8999 and $US0.9092.
ANZ senior markets dealer Alex Sinton said the Standard and Poor's Volatility index, a key barometer of risk-averse sentiment, surged on Friday night to 27.3 points, up from 17.3 the week before.
"The volatility index is generally a risk indicator. The higher it moves, the more people want to be out of the fringe risk assets and into the core," Mr Sinton said.
"If Obama does make regulatory changes around proprietary risk trading, my argument is that it will lower the banks' around the world desire to price fringe risk assets.
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"If you have lower levels of liquidity, you will have higher levels of volatility."
On Thursday night (AEDT), Mr Obama proposed to limit the size, risk-taking and proprietary trading ability of large Wall Street banks.
The plans to limit excessive risk-taking and protect taxpayers are aimed at preventing financial institutions from owning, investing in or sponsoring hedge funds or private equity funds.
While risk-sensitive assets took a beating following the news, Mr Sinton said the Australian dollar had been well supported by recent employment data and increasing speculation of a February interest rate rise.
Many economists tip the Reserve Bank of Australia (RBA) to lift the official cash rate to four per cent from its current 3.75 per cent when the board meets for the first time in 2010 on February 2.
During today's domestic session, the Australian Bureau of Statistics (ABS) is to publish its Producer Price Index (PPI) for the 2009 December quarter.
The median market forecast is for the PPI to have risen 0.1 per cent in the December quarter of 2009, for an annual fall of 1.0 per cent.
The data release feeds into the ABS's Consumer Price Index (CPI), a key measure of inflation, due for release on Wednesday.
The CPI will be looked at keenly by market forecasters as a further guide to whether the RBA will raise rates next week.
Mr Sinton said a strong result for the PPI could see the unit find support around $US0.8988 during the domestic session.
