The Australian dollar hit its highest level in a week as traders scale back their expectations for an interest rate cut before the end of the year.
The local unit was trading at US94.43¢ late on Friday, up from US94.01 cents on Thursday.
RBC Capital Markets currency strategist Sue Trinh said the chances of a rate cut by the Reserve Bank before the end of the year were weakening. "The dollar has been resilient in the face of softer stocks, rallying in Asia off its lows and to a new high for the week as expectations of RBA rate cuts get pushed back," Ms Trinh said.
On Tuesday, the Reserve Bank kept the cash rate unchanged at 2.5 per cent and made little mention of the need for further rate cuts.
The local currency is also rising against a greenback hit by concerns about the continuing US budget crisis. Most parts of the US government are still closed after the Congress failed to pass the budget by the end of the American financial year, three days ago. Agreement is needed to raise the borrowing limit for the US government by October 17.
Meanwhile, bond futures prices were slightly weaker as the prospect of rate cuts diminished.
Two of Australia's biggest banks have altered their rate forecasts, and are now expecting no more cuts this year.
RBC Capital Markets fixed interest strategist Su-Lin Ong said local bonds had underperformed compared with US paper, as the situation in the Congress bubbled along with no new developments. "That uncertainty should lend some support to the bond market but the weakness in our session has been mostly about Australia so we can't really attribute it to the US or any other offshore developments," Ms Ong said.
"There's the ongoing debate about the RBA and increasingly there is a market that thinks the RBA's done and that probably weighed on bonds."
At the local close on Friday, the December 10-year bond futures contract was trading at 96.005 (implying a yield of 3.995 per cent), down from 96.100 (3.900 per cent) on Thursday. The three-year contract was at 97.000 (3.00 per cent), down from previous local close of 97.050 (2.950).