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$A lower on the US fiscal cliff

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AAP

2012-12-14

The Australian dollar has fallen slightly on continuing worries about the US fiscal cliff.

At 1700 AEDT on Friday, the local unit was trading at 105.44 US cents, down from 105.52 cents at Thursday's close.

Since 0700 AEDT, it has traded between 105.11 US cents and 105.44 cents.

Commonwealth Bank currency strategist Joseph Capurso said the Aussie dollar had started the day weak, on concerns about the cliff, but had risen slightly on Chinese manufacturing data.

"Chinese flash PMI (purchasing managers' index) was slightly higher than expected, and regional share markets are quite strong, so that usually gives the Aussie a bit of a bump up," he said.

"However, liquidity is quite thin at this time of year, so it's hard to read much into it - it's been a pretty quiet day."

HSBC's Flash PMI rose to 50.9 in December, from 50.5 in November, stay above 50, which shows there was an expansion in Chinese manufacturing activity.

Mr Capurso said development around the fiscal cliff - a series of tax hikes and spending cuts due to being in 2013 - would dominate the market focus next week, and heading into the year's end.

"The market's been very patient with the politicians, but that patience might not last much longer," he said.

Also notable on Friday was the Australian dollar/Japanese yen cross - with the Aussie peaking at 88.54 yen on Friday afternoon, its highest point since March.

Mr Capurso said weakness in the yen could be due to concerns about Japan's general election on December 16, and expectations of economic stimulus by the country's central bank.

At the 1700 AEDT, the Australian currency was trading at 88.47 yen, up from 88.26 yen on Thursday and at 80.52 euro cents, down from 80.66 euro cents.

Meanwhile, Australian bond futures prices were lower.

At 1630 AEDT on Friday, the December 10-year bond futures contract was at 96.690 (implying a yield of 3.310 per cent), down from 96.770 (3.230 per cent) on Thursday.

The December three-year bond futures contract was trading at 97.185 (2.815 per cent), down from 97.260 (2.740 per cent).

Deutsche Bank bond trader Andrew Bryan said the fall was driven by a lack of liquidity in the market, rather than local or international economic concerns.

"The trend at the moment is mainly driven by currency moves, particularly the Aussie-yen cross," he said.

"There's not much liquidity in the market at the moment, so any flows are having an outsize effect."

However, Mr Bryan said that global concerns - notably the fiscal cliff - could become significant again next week.

Caroline Smith