Updated December 13, 2019 11:13:35

Photo: The prospect of an imminent US-China trade deal led to Wall Street hitting record highs. (Reuters: Brendan McDermid)

The Australian dollar has jumped to its highest value in almost five months on reports that the United States and China have reached a "phase one" trade agreement.

US President Donald Trump has signed off on a trade deal with China that would delay a new round of tariffs that was scheduled to be put in place on Sunday, according to Bloomberg News.

By 9:45am (AEDT), the local currency climbed to 69.32 US cents.

Mr Trump provided a strong hint overnight that he was close to signing a trade deal with China.

"Getting VERY close to a BIG DEAL with China. They want it, and so do we!" he tweeted.

The United States had offered to cut existing tariffs on $US375 billion worth of Chinese goods by as much as 50 per cent, according to Reuters and the New York Times — citing unnamed sources who are "familiar" with the negotiations.

It was also reported that Washington planned to suspend new tariffs, scheduled for Sunday on $US160 worth of Chinese imports, in an attempt to secure a "phase one" trade deal with Beijing.

However, currency experts believe the local currency might be overvalued.

"We believe the Australian dollar will struggle to appreciate much beyond that level [69.1 US cents] in the short‑term because we need to see a clear improvement in Australia's domestic economy," the Commonwealth Bank's chief currency strategist Richard Grace said.

"The Australian dollar has nevertheless endured a broad‑based appreciation over the last two days, consistent with the improving global economic outlook."

Pound surges on predicted Tory win

Meanwhile, the British pound was extremely volatile.

The Australian dollar soared to a three-week high against Britain's currency overnight (+1pc) at 52.75 pence.

But within three hours, it plunged (-2.3pc) to 51.27 pence by 9:45am (AEDT).

The local currency has not been this weak against the sterling since the Brexit referendum, three-and-a-half years ago (late-June 2016) — when a slim majority of Britons voted to leave the European Union.

The pound is also strongly higher against the US dollar, surging from $US1.316 to $US1.35 within an hour of the exit poll results being released.

Britain's currency surged as exit polls predicted that Prime Minister Boris Johnson will win an outright majority in the UK election.

Over the past few days, the pound had sunk because polls were anticipating the risk that Mr Johnson might fail to win a majority, which could have led to further Brexit uncertainty.

Record highs on Trump tweet

December 15 is a crucial date for the US and China — as well as the entire global economy.

If the US had implemented new tariffs on that date, many trade experts believed Beijing officials would have applied more tariffs on US goods and may have suspended talks until after the US presidential election in November 2020.

Mr Trump and Chinese President Xi Jinping have been embroiled in a 17-month trade war that has slowed global economic growth, and dampened profits and investment for companies worldwide.

By 10:30am (AEDT), the Australian share market kicked off the day with moderate gains.

The benchmark ASX 200 had lifted by 0.5 per cent to 6,745 points, driven by mining and financial stocks.

It is following a strong lead from Wall Street, which hit record highs for the first time in a fortnight — on the back of the President's tweet and the media reports.

But after the initial surge, US stocks pulled back from those highs as investors became more sceptical or only cautiously optimistic.

The Dow Jones index closed 221 points higher (+0.8 per cent) at 28,132.

The benchmark S&P 500 gained 0.9 per cent to end at a fresh record of 3,168 points.

The tech-heavy Nasdaq also posted strong gains, up 0.7 per cent.

The pull-back from session highs reflected "pretty natural scepticism," said Mark Hackett, chief of investment research at Nationwide.

"How many times have we had the Lucy pulling the football away in this trade deal?

"This one seems a little bit more tangible than some of the previous ones, but I still think investors are wise to wait … for something actually being signed."

Spot gold slipped to $US1,469 an ounce, while Brent crude oil spiked to $US64.44 per barrel.

ABC/Reuters

Topics: business-economics-and-finance, stockmarket, markets, currency, australia, united-states

First posted December 13, 2019 07:45:02