The Australian dollar traded at US78.70c as traders also parsed data on housing finance and a survey of business conditions ahead of US inflation data due overnight.

Investors appeared troubled by the news that franking credits may not be available to retirees if Labor is elected next year.

"Lots of retirees have been focusing on high dividend shares to boost income levels," noted AMP Capital's head of investment Shane Oliver.

Dr Oliver estimated that franking credits currently add around 1.5 percentage points to Australian sharemarket returns.

If the dividend franking plan is introduced "at the margin you're getting less of a kicker on Australian shares. You may look overseas or you may look at property, or high yielding global shares," he said. "Markets are trying to get to grips with that."

Companies such as Telstra are vulnerable to changes in the treatment of franking credits as the bulk of their earnings are in Australia, Mr Oliver noted. Telstra shares fell 0.9 per cent to $3.41.

Meanwhile, hearings in the Hayne royal commission into the financial services sector kicked off in earnest on Tuesday and CBA fell 0.4 per cent to $77.05, NAB lost 0.2 per cent to $30.35, ANZ declined 0.4 per cent to $28.49 and Westpac lost 0.2 per cent to $30.20.

The hearings will delve into the intricacies of the consumer credit law, the role of ASIC, and the application by banks of the industry code of conduct over the next few months.

Investors in the other heavyweight sector of the market - resource stocks - contended with a sharp drop in iron ore prices on Monday night.

BHP declined 0.8 per cent to $28.67, Rio Tinto shares fell 2 per cent to $74, South32 dropped 1.9 per cent to $3.18 and Fortescue Metals lost 2.9 per cent to $4.67.

Consumer staples companies also performed well, with dairy firm A2 rising 2.7 per cent to $13.06 and conglomerate Wesfarmers advancing 0.5 per cent to $40.97.