THE Australian dollar edged higher, thanks to a rise in iron ore prices and gains on the local sharemarket.
The dollar rallied during offshore trading to open at US103.77¢ at the start of the local trading day, up from Thursday's close of US103.57¢. Late on Friday it was trading at US103.74¢.
St George chief economist Hans Kunnen said the dollar's rise was due to firmer commodities prices and positive sentiment from equity markets in the region.
"I'd put it down to rising iron ore prices," Mr Kunnen said. Iron ore climbed about 3 per cent during the overnight session.
The dollar also peaked at 89.835 yen, its highest level against the Japanese currency since April 2011.
Mr Kunnen said the yen had been losing ground since the new Japanese Prime Minister, Shinzo Abe, came to office and pledged to work with the Bank of Japan to stimulate the nation's economy.
"It's strengthening against the yen simply on the basis that they're printing money and they've abandoned their low inflation target, so down goes their currency," Mr Kunnen said.
Investors on the bond market were drawn to fixed-income assets as the prospects of a resolution to the US fiscal cliff appear to fade. The March 10-year bond futures contract was trading at 96.700 (implying a yield of 3.3 per cent), up from Thursday's local close of 96.680 (3.320 per cent). The three-year contract was at 97.290 (2.71 per cent), up from 97.280 (2.720 per cent) previously.
The bond market rallied during overnight offshore trading to open firmer.Commonwealth Bank interest rate strategist Phillip Brown said fading hopes of a deal being struck between US President Barack Obama and legislators in Congress over the looming budget deadline prompted a slight rally for bonds.
"The fiscal cliff is getting very close, the fiscal cliff deal is getting no closer at all," Mr Brown said.