Growing evidence of an emerging economic recovery in Europe pushed the Australian dollar to three-week lows today.
Some market watchers say this might signal an important shift in direction for the currency.
Traders say heavy-selling of the Australian dollar has been seen against the euro this week reflecting a gradual reversal of earlier bets that Australia's economy will remain strong while Europe stays mired in a debt crisis.
"These positions were originally opened to sell the euro on a pessimistic outlook for the eurozone economy and to buy the Australian dollar because of its new status as a safe-haven currency," ANZ said in a market commentary.
The selling looks set to continue, the bank said.
"Our best guess is that these speculative accounts still have more positions to close out. Levels of $US1.02-$US1.03 would not be surprising over the next few weeks," it said.
At 4.50pm AEDT the Australian dollar was buying $US1.0452 down from $US1.0513 late yesterday and below a session high of $US1.0456. Against the euro the Australian dollar was trading at 0.7815 euro compared with highs at the start of the week about 0.7957 euro.
Still, ANZ said weakness in the Australian dollar might be brief adding it retains a view the Australian dollar will average about $US1.0500 through 2013.
All eyes are now on the European Central Bank amid expectations it will confirm later today that funds it loaned to support the region over recent years will be repaid faster than expected.
"An upside surprise in the amount to be repaid would further illustrate improving euro-zone market confidence," said Peter Dragicevich, currency strategist at Commonwealth Bank.
Next week the Australian market will focus on the question of if the Reserve Bank of Australia will cut interest rates at the start of February.
Third-quarter inflation data published Wednesday signals the RBA can cut interest rates if it wants, Citigroup Australia chief economist Paul Brennan said.
Still, there were factors which might cause it to hold off, he said.
"Whether the RBA decides to cut at the February meeting now depends on whether the board believes the domestic economy needs further support. In our view it does so we look for two further cuts," Mr Brennan said.
