$A lower on Chinese shares weakness

THE Australian dollar is slightly lower following weakness in Chinese stocks.

At 1700 AEDT on Wednesday, the local currency was trading at 105.16 US cents, down from 105.34 cents on Tuesday afternoon.

Commonwealth Bank currency strategist Joseph Capurso said the Australian dollar had traded in a narrow range on Wednesday but a slide in the Shanghai Composite Index, earlier in the day, had put some downward pressure on the currency.

"The Chinese stock market is a little bit weaker, maybe that has put a bit of downside on the Aussie dollar but it's hard to scratch around for a reason really," he said,

The lack of volatility in the Australian dollar came despite positivity in global markets, which saw shares in the US, Asia and Europe rally and the euro rally to a seven-month high against the US dollar.

Mr Capurso expected the Australian currency to trade in a narrow range in the lead up to Christmas, unless there were significant developments in US debt negotiations.

Democrats and Republicans are trying to reach a compromise to bring down the country's debt while avoiding a "fiscal cliff" of automatic tax hikes and spending cuts due to apply from the beginning of 2013.

"If it gets resolved the Aussie would put on a cent or maybe more very quickly but that would fade off eventually," Mr Capurso said.

"But if the market gets worried we are going to fall of the cliff the Aussie is going to fall."

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