The Australian dollar has dropped from its recent three-month high, in the lead-up to a key European Union summit to tackle sovereign debt.
Concerns around Greece's inability to reach a debt bailout deal also concerned the market on Monday, with the local currency drifting lower as it awaited further news from Europe.
At 1700 AEDT, the Australian dollar was trading at 105.67 US cents, down from 106.12 cents on Friday.
Since 0700 AEDT, it has traded between a low of 105.65 US cents and a high of 106.53 cents.
The local currency traded as high as 106.86 US cents early on Friday morning, its highest since October 31, bolstered by strong performances on equity markets last week.
At 1700 AEDT on Monday, the Australian dollar was trading at 81.03 Japanese yen, down from 81.75 on Friday, and at 80.25 euro cents down from 81.00.
Nomura head of foreign exchange Kurt Magnus said the Aussie dollar market was awaiting news from the EU meeting but was likely push higher later in the week.
"It's like a state of suspended animation," he said of the local currency market.
As global markets continued to hang their movements on headlines, the Reserve Bank of Australia's (RBA) rates decision next week would be a focal point, Mr Magnus said.
"The risk is that the RBA will cut but the banks won't follow," he said.
"Then we're at the mercy of the international situation.
"At the moment, it's a ball-by-ball situation - I think the Aussie will be well supported at 105.50 (US cents), and will gradually move higher towards the end of the week."
The RBA is expected to cut rates for a third consecutive time when its board meets on February 7.
Meanwhile, Australian bond futures prices were higher on Monday.
ANZ head of interest rate research Tony Morriss said the local bond market was performing strongly, taking its lead from weaker US economic data and markets.
Weak US gross domestic product figures and a poor stock market performance on Wall Street last week helped fuel a global move toward bonds.
"We had a weak stock market performance which always helps bonds," Mr Morriss said.
Australian and Asian stock markets closed lower on Monday following the weaker lead from the US and ongoing uncertainty about a deal to prevent Greece defaulting on its debt
Mr Morriss said Australian 10-year bonds remained in particularly high demand.
"The long-term bonds remain very much in demand and the fact that Australia has a strong AAA rating has helped lend support to the long end of the curve," he said.
At 1630 AEDT on Monday the March 10-year bond futures contract was trading at 96.185 (implying a yield of 3.815 per cent), up from 96.125 (3.875 per cent) on Friday.
The March three-year bond futures contract was at 96.820 (3.180 per cent) up from 96.750 (3.250 per cent).
The RBA's trade weighted index was 77.7 on Monday down from 78.0 on Friday.
