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SYDNEY, Nov 19 AAP

November 19 2012, 07:31AM

The Australian dollar is higher on hopes US leaders will reach an agreement to avoid a so-called `fiscal cliff' of tax hikes and spending cuts due to take effect from early 2013.

At 0700 AEDT on Monday, the currency was trading at 103.40 US cents, up from 103.21 US cents on Friday afternoon.

Westpac New Zealand senior market strategist Imre Speizer said the Australian dollar dropped to 102.88 US cents on Friday night, its lowest level in three weeks, as the conflict between Israel and Palestine continued to escalate.

But, Mr Speizer said, the currency pushed higher on signs of progress in discussions between the US Republicans and Democrats trying to avoid the `fiscal cliff', and the expected recession should the automatic tax increases and spending cuts be allowed to take effect.

Both sides expressed willingness to find common ground when President Barack Obama met with congressional leaders to open talks on the matter.

Mr Speizer said the positive sentiment from Friday night could see the Australian dollar continue to move higher early on Monday, but the currency was likely to fall back below 102.90 US cents again as the week progressed.

He said the key local events for the currency would be the release of the Reserve Bank of Australia's (RBA) November board meeting minutes and a speech by RBA Governor Glenn Stevens.

"We will get a sense of why they kept the cash rate on hold and perhaps what they are seeing regarding the outlook for mining investment," he said.

"If they see investment in mining infrastructure peaking earlier than expected, I think the market might sell the Aussie."