At 1900 AEST on Tuesday, the currency was trading at 71.32 US cents, up from 70.90 cents on Monday. CMC Markets analyst Michael McCarthy said the local currency rallied early in the day on Malcolm Turnbull's elevation to prime minister, then fell.
"We got up to around 71.65 US cents and have now pulled back," Mr McCarthy said.
"As it became clear it was not getting much momentum it faded."
The local currency dipped after the Reserve Bank appeared content to keep its interest rate at a record low for the time being, as non-mining industries begin to show signs of improvement.
While the RBA board members appeared more optimistic about the domestic economy, they were also unsure as to the ultimate impact of recent turmoil on financial markets sparked by worries about China's slowing economy.
Traders are also cautious ahead of the US Federal Reserve rates decision at the end of the week. At 1700 AEST, the Australian dollar was at 85.24 Japanese yen, down from Monday's close of 85.29 yen, and at 63.01 euro cents, up from 62.40 euro cents.
The bond market was slightly firmer ahead of a possible interest rate rise in the US. At 1630 AEST on Tuesday, the December 2015 10-year bond futures contract was trading at 97.290 (implying a yield of 2.710 per cent), up from 97.273 (2.727 per cent).
The December 2015 three-year bond futures contract was at 98.165 (1.835 per cent), unchanged.
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