By a staff reporter, with AAP
The Australia dollar opened below 99 US cents for the second straight session, driven lower by growing investor demand for the United States dollar and a negative response to Tuesday's federal budget.
At 725 AEST Thursday, the Australian dollar was trading at 98.93 US cents, up from Tuesday's close of 98.88 US cents.
ForexCT head of research Steven Dooley said the local currency lost around one US cent in the 24 hours after Treasurer Wayne Swan announced a larger than expected budget deficit.
Mr Swan forecast a budget deficit of $18 billion for the next financial year followed by a deficit of $10.9 billion in 2014/15.
Mr Dooley said the move lower was also linked to a rally in the US dollar against all major currencies.
Economists have predicted further declines for the Australian dollar, which has lost nearly five per cent of its value since the start of May.
The Australian dollar is slightly higher as the greenback's week-long rally stalled following the release weak New York State manufacturing data.
At 0700 AEST on Thursday, the local unit was trading at 98.99 US cents, up from 98.72 cents on Wednesday.
During the overnight session, the currency peaked at 99.01 US cents, its highest level since Monday.
BK Asset Management managing director Kathy Lien said the fall in New York state manufacturing activity in May dampened hopes that the US Federal Reserve would end its program of bond purchases aimed at boosting the American economy.
Over the past week, the US dollar rallied against all the major currencies on hopes that that program would end soon.
"The reason why you've seen a mild amount of strength in the Australian dollar is because we've had a weaker US economic report," Ms Lien said from New York.
"That raised some concerns whether the improvements in April economic data will be sustained into May and whether all this talk of the Fed tapering asset purchases is justified.
"So, you saw a little bit of a sell-off in the US dollar and that's driven the Aussie higher. But, it is relatively modest."
Ms Lien said investors would get further indications about the state of the US economy during the offshore session on Thursday night.
US housing starts for April and the Philadelphia Federal Reserve manufacturing survey for the same month will be released.
Ms Lien said she expects the Australian dollar to trade in a range between 98.60 and 99.25 cents on Thursday.