Dollar falls below parity, hits five-month low

THE dollar fell below parity with the US dollar for the first time in almost five months, as political uncertainty in Greece and signs of an economic slowdown in China rekindled trader pessimism.

The dollar went below parity for the first time since December but soon recovered to trade above 100 US cents for the rest of the afternoon.

At 5pm (AEST), the local unit was trading at US100.08c, down from 100.27c on Friday.

The dollar fell below parity again in late afternoon trade after European markets opened at 5pm (AEST).

Commonwealth Bank currency strategist Joseph Capurso said it was all bad news for the dollar.

"The best bet is that the Aussie dollar will keep grinding lower," Mr Capurso said.

"There's a good chance in the next month it'll be 98 US cents."

Mr Capurso said the decision by the Chinese central bank on Saturday to cut the reserve requirement ratio (triple r) for commercial banks - freeing up more money for banks to lend - was a key factor driving the Australian currency down.

"They cut that triple r rate again over the weekend, which means they must be worried about growth and that's not good news for Australia," he said.

"There's also ongoing issues in Greece, they still don't have a government let alone implementation of their bailout package.

"That was not good for the Aussie dollar and it will continue to run lower."

Mr Capurso said news about the ongoing negotiations to form a Greek government would drive currency markets for the rest of the week.

At 5pm (AEST), the dollar was at 80.12 Japanese yen, up from Friday's close at 80.02 yen, and was at 77.64 euro cents, a touch up from 77.63 euro cents previously.

Meanwhile, Australian 10-year bond future prices rose to their highest level yet, boosted by worries over the Greek political deadlock and its implication for the euro zone.

During morning trade in Australia, the June 10-year bond futures contract hit an all-time high of 96.810 (3.190 per cent).

At 4.30pm (AEST), the 10-year bond futures contract was trading at 96.765 (implying a yield of 3.235 per cent), slightly up from 96.760 (3.240 per cent) on Friday.

The June three-year bond futures contract was at 97.380 (2.620 per cent), up from 97.360 (2.640 per cent).

ANZ senior rates strategist Tony Morriss said worries over Europe had driven demand for safe-haven investments such as Australian bonds.

"There was the ongoing focus on Europe and the prospects of ongoing pressure for Greece to leave the euro area if they can't build a coalition," Mr Morriss said.

"There is still some flight to quality for US bonds, (German) bunds and Australia, as the triple-A market is still seeing some good support."

The Reserve Bank of Australia's trade weighted index fell to 74.6 on Monday, from 74.7 on Friday.