This is also known to randomly happen while accessing store cash registers. It should restore the normal function of your cursor. Known workaround for this is to open your tool wheel and select the ace or pickaxe and swing it once. (When players enter dialogue with a Villager and exit the dialogue your mouse cursor will still be onscreen)
You can also use numbers and to navigate the chat options since each chat option has a number Workaround: If this happens, press ESC on your keyboard and re initiate the conversation with the NPC. The issue started in patch 170 and is still ongoing till patch 172. It makes it difficult to navigate and select chat options since you cant click on anything. Sometimes the cursor disappears when initiating a conversation with an NPC. Missing cursor when dialogue is initiated with an NPC While our developers are working as hard as they can on improving Palia further during our Open Beta, we’ve gathered a list of known issues, bug info, and available troubleshooting steps to help players navigate the most common issues they may encounter in-game.