The Australian dollar has fallen back below 90 US cents as positive economic data fanned fears the Federal Reserve will begin winding down its economist stimulus next week.

US Commerce Department figures revealed a 0.7 per cent rise in retail sales in during November, which was better than expected and the strongest gain in five months.

The result comes after a 0.6 per cent rise in October, and adds weight to forecasts of the US economic recovery strengthening.

The Australian dollar fell to as low as 89.16 US cents after the announcement.

At 9:20am (AEDT), it was trading at 89.31 US cents.

The positive economic news also provoked a drop in markets on Wall Street overnight.

The Dow Jones Industrial Average lost 0.7 per cent to close at 15,773 points.

The S&P 500 fell 0.38 per cent to 1,776.

The upbeat retail picture was slightly clouded by other data, which showed the biggest jump in a year in first-time jobless claims.

Claims were up 68,000 to 368,000 last week, but that was largely dismissed by economists as an anomaly.

Some economists are anticipating the US Federal Reserve will begin winding down its $85-billion-per-month economic stimulus at its meeting next week.

If the stimulus is cut, it will effectively reduce supply of US dollars.

It will therefore push up the US dollar’s value and drag on the value of Australian dollar.

Unemployment figures also weigh on dollar

NAB Markets chief economist Rob Henderson NAB Markets believes yesterday’s increase to the Australian unemployment rate contributed to the dollar’s fall overnight.

“The rise in the unemployment rate yesterday from 5.7 per cent to 5.8 per cent reminded the market that the RBA still could cut rates ahead.”

And comments to the media by RBA Governor Glenn Stevens this morning, that he would like to see the dollar closer to 85 US cents, are also being seen as a factor.

“What was surprising about this intervention was not so much that the Governor stated that the lower currency would be better but rather that he mentioned a specific level of 85 US cents,” Mr Henderson said.

Across the Atlantic, markets also went into retreat.

London’s FTSE 100 dropped 1 per cent to 6,445 points, and is heading for its longest run of weekly drops since 2008.

Markets across the eurozone averaged losses of 0.8 per cent.

Oil prices made small gains overnight.

West Texas crude finished at $US97.14 a barrel, and Singapore’s Tapis crude price closed at $US114.98.

The spot gold price fell 2 per cent to $US1,226.40 an ounce.