The Australian dollar was higher after the US dollar fell sharply on a night of bad economic news from the US.

At 1200 AEST on Thursday, the Australian dollar was trading at 106.86 US cents, up/down from 106.44 cents on Thursday.

Since 0700 (AEST) on Friday, the local unit traded between 106.04 US cents and 107.16 cents.

Overnight, Moody’s Investors Service warned of a credit rating downgrade for the US if there is no resolution on the nation’s borrowing limit.

It was also announced there was a smaller-than-expected drop in US jobless claims last week and that April factory orders were weaker.

Commonwealth Bank chief currency strategist Richard Grace said the Australian dollar rose on the back of US dollar weakness, but had lost some momentum in the local session.

“The sell-off in the US dollar and the buying of the euro and the Aussie dollar has just petered out,” Mr Grace said.

“One of the key driving factors for the rise in the Australian dollar overnight was those Moody’s comments.”

Mr Grace said the market would now be focusing on US non-farm payroll figures for May, a key measure of unemployment.

He expects the Australian dollar to trade in a range between 106.60 US cents and 107.20 cents until the London markets open late on Friday afternoon.

Meanwhile, the Australian bond market was weaker at midday on Friday.

At 1200 AEST, the June 10-year bond futures contract was trading at 94.745 (implying a yield of 2.255 per cent), down from 94.770 (5.230 per cent) on Thursday.

The June three-year bond futures contract was at 95.080 (4.920 per cent), level with its previous local close.