The Australian dollar has handed back the gains it made after China cut its benchmark interest rates.

At 0700 AEDT on Tuesday, the local unit was trading at 86.10 US cents, down from 86.83 cents on Monday.

The currency rose past 87 US cents on Monday after the People’s Bank of China reduced its benchmark interest rates for the first time in more than two years.

However, FxPro chief economist, Simon Smith, said any gains from the Chinese rate cut were bound to be short lived.

“The initial reaction saw the Aussie gain, together with stocks, as investors once again took the view that central banks were coming to the rescue,” he said.

“But rate cuts in China are not the same as rate cuts elsewhere.

“The banking system works very differently and the impact of this move is likely to be limited in terms of its impact on China and also the prospects for the global economy.”

Traders are awaiting a speech by Reserve Bank of Australia deputy governor, Philip Lowe, to an Australian Business Economists (ABE) dinner in Sydney on Tuesday night (AEDT).

AAP