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$A virtually unchanged despite RBA minutes

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AAP

2012-12-18

The Australian dollar is virtually unchanged and trading in a very tight range as markets wait for developments in US debt talks.

At 1700 AEDT on Tuesday, the currency was trading at 105.34 US cents, down a touch from 105.35 cents on Monday afternoon.

ForexCT head of research Steven Dooley said the Australian dollar had traded in a narrow range of between 105.31 US cents and 105.55 cents during Tuesday's local session.

He said the release of the minutes from the Reserve Bank of Australia's December board meeting pushed the currency a little higher around noon.

"They (the RBA) weren't quite as dovish as we would have expected them to be, so we did see the Aussie push a little bit higher on that news but it wasn't really a significant move," he said.

He said the currency could move sharply over the next two weeks, depending on developments in debt negotiations between US President Barack Obama and House of Representatives Speaker John Boehner.

"The main feature about the Australian dollar at the moment is just the complete lack of volatility," Mr Dooley said.

"Normally that is the precursor to a big, big move."

President Obama and Mr Boehner are attempting to reach an agreement on measures to reduce the US budget deficit that will allow them to avoid a so-called `fiscal cliff' of tax hikes and spending cuts due to apply in 2013.

At 1700 AEDT, the Australian dollar was at 88.51 Japanese yen, down from 88.55 yen on Monday, and at 79.98 euro cents, down from 80.06 euro cents.

Meanwhile, RBC Capital Markets fixed income strategist Su-Lin Ong said Australian bond futures prices are lower following the release of the minutes of the RBA meeting.

"The minutes from the December meeting suggested it was quite a close decision and I guess the interpretation is that with the cash rate down to three per cent the hurdle to cut further may be quite high," she said.

"So that weighed quite high on fixed income markets."

Ms Ong said developments in fiscal cliff negotiations were likely to drive bond markets over the coming days.

At 1630 AEDT on Tuesday, the March 10-year bond futures contract was at 96.640 (implying a yield of 3.360 per cent), down from 96.670 (3.330 per cent) on Monday.

The March three-year bond futures contract was trading at 97.220 (2.780 per cent), down from 97.235 (2.765 per cent).

Evan Schwarten