THE Australian dollar closed weaker as investors moved into the US dollar ahead of key Chinese economic data due later in the week.
The Australian dollar opened higher today as a positive close on Wall Street underpinned the currency.
At 5pm, the Australian dollar was trading at US87.03c, down from Monday's close of US87.19c.
Since 7am, the domestic dollar traded between US87.80c and US86.95c.
It had been a quiet day for the local unit until London markets opened later in the domestic session and dragged the unit lower, 4Cast Financial Markets head of research Ray Attrill said.
"As Europe is coming in, we have seen upward pressure in the US dollar and the Aussie has been carried away by that," he said.
Mr Attrill said the unit had been sold off following rumours China's consumer price index inflation figures on Thursday would show a higher rate than was expected.
"There's a rumour that the next Chinese CPI numbers are going to be up at 3.3 or 3.4 per cent," he said.
"It's heightened expectations that China could be hiking interest rates.
"That's not going to be good for the Aussie."
The median market forecast is for China's CPI reading for the year to June to be 3.3 per cent.
During the offshore session, the UK's Office for National Statistics is expected to release its CPI reading for the June quarter.
The median market forecast is for the year-on-year rate of inflation to be 3.2 per cent.
Mr Attrill said he did not expect the data to have a direct effect on the local dollar but expected the unit to trade lower regardless.
He said there was a possibility the Australian dollar would fall to 86.50 Us cents during offshore trade.
Meanwhile, the Australian share market closed weaker today after resources stocks slumped due to worries about iron ore prices and demand from China.
At 4.15pm, the benchmark S&P/ASX200 index was down 29.6 points, or 0.67 per cent, at 4380.3 points, while the broader All Ordinaries index had fallen 29.5 points, or 0.67 per cent, to 4400 points.
On the Sydney Futures Exchange, the September share price index contract was 24 points lower at 4362 points, with 25,360 contracts traded.
Local stocks were up for most of the morning session but dipped marginally into the red just before noon and headed lower through the afternoon.
The worst performers were mining stocks, with BHP Billiton down 99 cents, or 2.56 per cent, at $37.62 and Rio Tinto down $2.22, or 3.23 per cent, at $66.55.
Fortescue Metals ended 20 cents, or 4.48 per cent, lower at $4.26.
Other commodities-linked stocks also did poorly, after the benchmark crude oil futures contract slipped below $US75 a barrel during overnight trade.
Copper, silver and gold contract prices also eased.
Santos slumped 29 cents, or 2.06 per cent, to $13.82, Oil Search dropped nine cents to $5.76 and Woodside Petroleum ended down 25 cents at $42.32.
At 4.22pm, the spot price of gold in Sydney was $US1,199.00 per fine ounce, down $US9.70 from yesterday's close of $US1,208.70.
Newcrest Mining was 15 cents lower at $34.83, while Lihir Gold had eased three cents to $4.30.
At other end of the seesaw, a couple of the major retail banks posted reasonable gains that helped support the market.
Commonwealth Bank rose 37 cents to $49.93, National Australia Bank gained 15 cents to $24.40 but Westpac ended six cents weaker at $22.26 and ANZ ended down 18 cents at $22.25.
The Rio Tinto majority owned uranium producer ended down 68 cents, or 4.62 per cent, at $14.05.
Mineral sands miner Iluka Resources said rutile production at its Murray Basin stage two project in Victoria would be lower than previously forecast.
Iluka gained four cents to $5.35.
Earthmoving equipment provider Emeco Holdings said annual net profit would be at the lower end of previous guidance as the company began to solely focus on the mining sector.
Earlier the Australian dollar was trading at US87.56c, up 0.44 per cent from yesterday's close of US87.19c.
Since its local close yesterday at 5pm the domestic dollar traded between US87.02c and US87.60c.
Wall Street edged higher in subdued trade ahead of the start of the second quarter earnings season in the US.
The Dow Jones Industrial Average ended up 0.18 per cent, while the broader-based Standard & Poor's 500 index closed 0.07 per cent higher.
"It (the Australian dollar) had a really weak session in Sydney, then had a strong offshore session in comparison," Westpac New Zealand senior market strategist, Imre Speizer, said from Wellington.
Mr Speizer said the release of Alcoa's second quarter earnings report after the close of trade in New York supported the currency.
The aluminium producer reported a net profit of $136 million in the June quarter, a turnaround from a loss of $454 million in the corresponding period in 2009.
The manufacturer is the first of major companies to begin the second quarter reporting season in the US, where investors are cautious about the profitability of American companies.
"We had a decent enough Alcoa report to kick-off earnings season," Mr Speizer said.
"The currency markets were looking at that as the main event on the day, and that has given it a little bit of a nudge."
Economic events due locally today include the National Australia Bank monthly business survey for last month and lending finance for May from the Australian Bureau of Statistics.
