The Australian dollar trimmed some of its impressive gains on Friday but managed to hold above 90 US cents, buoyed by the likelihood interest rates at home will rise faster than elsewhere.
The US dollar earned a reprieve after US Federal Reserve chairman Ben Bernanke indicated that monetary policy might have to be tightened there as a recovery takes hold.
The comments were not new, but investors used them as an excuse to trim long positions in the Australian dollar and the yen.
By the local close, the Australian dollar was buying 90.34 US cents. It was also buying 80.62 yen, 56.4 pence and 61.36 euro cents.
The dollar was up about 3 per cent for the week against the greenback.
"Bernanke's comments may have sparked some profit-taking but the solid undertone for the Aussie remains intact and any dip is a buying opportunity," said Jim Vrondas, manager of corporate business at OzForex.
"As long as US rates are low, we could see it turn into the preferred currency for carry trades and its downward trend will continue."
As a testament to the Aussie's growing yield allure for investors searching for better returns, the spread of Australian two-year swap yields over their US counterparts remained near 13-month highs, at 374 basis points.
Apart from benefiting from carry trades, the Aussie has been supported by a resilient local economy, a recovery in the global economy, higher commodity prices and a pick-up in risk appetite.
A stunning rise in September employment also heightened expectations that the economy was in good shape.
That led investors to fully price in a 25-basis-point rate rise in November. The Reserve Bank of Australia became the first central bank in the G-20 to start raising interest rates when it lifted its cash rate by a quarter per centage point to 3.25 per cent earlier this week.
It indicated it would raise rates further in coming months. Interbank futures are implying a 1-month rate of 3.74 per cent in December while overnight indexed swaps show rates at 4.3575 per cent in one year.
Australian one-year swap yields were firm near 11-month highs, trading at 4.55 per cent. For the week, yields have gained more than 30 basis points.
Bond futures were indicated higher, on some bargain-buying after being sold off aggressively earlier in the week.
Three-year bond futures were indicated 0.03 points higher at 94.94. The 10-year contract added 0.04 points to 94.725.
