Australian dollar falls

The Australian dollar has fallen Thursday, buying 71.38 US cents from 71.87 US cents on Wednesday.

The local currency on Tuesday consolidated gains as signs of progress in the Sino-US trade dispute were taken as a positive for the Chinese economy and commodity prices.

The Aussie dollar hovered at 71.64 US cents, having stretched as high as 71.84 US cents overnight.

Dealers noted there were very large option positions due to expire between 71.50 and 72.00 US cents which would tend to trap the currency in that range.

US President Donald Trump said on Monday he may soon sign a deal to end a trade war with Chinese President Xi Jinping if their countries can bridge remaining differences, saying negotiators were “very, very close” to a deal.

Markets rallied after Trump said on Sunday he would delay an increase in US tariffs on $US200 billion of Chinese goods.

The trade news combined with expectations of more policy stimulus from Beijing to set off a huge rally in Chinese shares on Monday, with Shanghai blue chips climbing almost six per cent.

Commodities also benefited, with copper hitting its highest in nearly eight months.

The industrial metal is considered a bellwether for global activity and has acted as a leading indicator for the Aussie in the past.

“Buoyant risk appetite and commodity prices are currently more than offsetting the domestic concerns over a subdued consumer, declining house prices and a cautious Reserve Bank,” said Rodrigo Catril, a senior FX strategist at National Australia Bank.

“Our fair value model has continued to tick higher, suggesting a move above 72.00 US cents looks reasonable from a fundamental basis.”

Earlier this month, the Reserve Bank of Australia took a dovish turn on policy, saying economic risks were now more balanced and the next move in interest rates might be a cut rather than a hike.

Futures currently imply around a 74 per cent chance of a quarter-point easing in the 1.5 per cent cash rate by the end of the year.

The outlook for the economy could become clearer over the next week or so with data on fourth-quarter business investment, government spending, the current account and gross domestic product all due.

Australian government bond futures dipped as risk sentiment improved, with the three-year bond contract off one tick at 98.330.

The 10-year contract fell two ticks to 97.8950.

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