THE Australian dollar closed higher on expectations of another interest rate rise by the central bank.
At 5pm (AEDT), the Australian dollar was trading at 90.64 US cents, up 0.34 per cent from Friday's close of 90.30 cents.
From 7am (AEDT) until 5pm (AEDT) today, the local unit traded between 90.14 US cents and 90.75 cents.
Commonwealth Bank currency strategist Joseph Capurso said the local currency rose on expectations the Reserve Bank of Australia (RBA) would lift the overnight cash rate from 3.75 per cent to 4.0 per cent on February 2.
"You have got an unemployment rate that is within spitting distance of full employment (deemed to be five per cent compared to a current 5.5 per cent)," Mr Capurso said.
"You have a cash rate that is extremely low (at 3.75 per cent) and very supportive of the economy.
"Rates have to go up by a fair bit and we think that it has to go up to five per cent by the end of the year."
Mr Capurso said the Australian dollar strengthened ahead of the Wednesday release of the consumer price index (CPI) for the December quarter.
"As investors turn their sights to next week's RBA decision, they are starting to bid up the Aussie," he said.
At 5pm (AEDT), the Australian dollar was trading at 81.63 Japanese yen, up from Friday's close of 81.24 yen, and at 63.98 euro cents, up from 63.91 euro cents.
The euro finished at 1.41 US dollars, up from Friday's close of $US1.41 US dollars, and 127.59 Japanese yen, up from 127.09 yen.
The US dollar was at 90.09 Japanese yen, up from 89.96 yen on Friday.
Meanwhile, the Australian bond market closed mixed.
At 4.30pm (AEDT), the yield on the Commonwealth Government April 2020 bond was at 5.526 per cent, up from Friday's close of 5.484.
The yield on the May 2013 bond was at 4.948 per cent, down from 4.962 per cent.
On the Sydney Futures Exchange, the March 10-year bond futures contract was at 94.455, down from Friday's close of 94.500, while the March three-year bond futures contract was at 94.990, up from 94.980 previously.
ANZ senior rates strategist Tony Morriss said dealers sold the long-end of the domestic fixed income market, the 10-years bond, following the PPI report.peAustralia's producer price index at the final stage of production fell 0.4 per cent in the December quarter, for an annual fall of 1.5 per cent, the ABS said today.
It was weaker than market forecasts of a quarterly rise of 0.1 per cent and a yearly fall of 1.0 per cent.
The report suggested inflation for the December quarter would be below market expectations when it is released on Wednesday.
"The PPI data today suggests there will be quite a soft CPI on Wednesday, which removes a little bit of the argument for the RBA to (raise rates) in February," Mr Morriss said.
At 4.30pm (AEDT), the 90-day bank bill rate was at 4.250 per cent, where it closed on Friday, while the 180-day bank bill rate was at 4.540 per cent, up from 4.520 per cent previously.
At 4pm (AEDT), the Reserve Bank of Australia's trade weighted index (TWI) was at 70.2 points, up from Friday's close of 69.9.
