The Australian dollar is almost half a US cent lower as the wave of positivity that followed the US fiscal cliff deal receded.
At 1700 AEDT on Friday, the currency was trading at 104.43 US cents, down from 104.84 US cents on Thursday.
LTG Goldrock director Andrew Barnett said the Australian dollar had retreated from the currency's one US cent rally after the US Congress passed legislation that avoided the fiscal cliff.
Having averted a series of automatic spending cuts and tax hikes that would have pushed the US economy into recession, Mr Barnett said markets were now focussed on the upcoming battle in Congress over the US debt ceiling.
"The market right now is selling off based on traders second guessing," Mr Barnett said.
"They are very quickly realising that the debt issue in the US hasn't been resolved, markets are under pressure and reality is biting."
Mr Barnett said the release of the minutes of the Federal Open Market Committee (FOMC) December policy meeting also hurt the Australian dollar by pushing up demand for its US counterpart.
The minutes showed some of the FOMC's voting members thought the US central bank's bond purchasing program, known as quantitative easing, should be slowed or stopped by the end of 2013.
He said the Australian dollar could continue to weaken on Friday night if US non-farm payrolls data - a key US employment report - showed weaker-than-expected jobs growth.
"If we see a weak non-farm payrolls and we have another red day in the US (stock markets) we are going to see the Aussie dollar pull back a little bit," Mr Barnett said.