Local investors will be looking to economic data out this week for signs that business confidence is improving as growing nervousness over the US government shutdown looms over international markets.
US treasuries fell for the first time in four weeks last week on bets lawmakers will end the partial shutdown in time to reach an accord on extending the federal debt limit.
The Australian benchmark S&P/ASX 200 Index shed 26.9 points on Friday to close at 5208 points, a 1.9 per cent loss for the week.
While analysts said investors were keen for a resolution to the US deadlock, more important were improvements to local business conditions and employment.
"The Reserve Bank has been hoping that there would be improvement in confidence after the change of government," ANZ economist Ivan Colhoun said.
"We had some strong readings from the AIG surveys last week, and the data out this week will hopefully show that conditions improved, particularly in manufacturing and retail sectors where they have been struggling," he said.
"If they improve, policy is working and things are getting better."
The National Australia Bank business confidence and conditions surveys will be released on Tuesday, with the Westpac consumer confidence survey out on Wednesday. Employment data will also be released on Thursday.
Mr Colhoun said the Australian market had been immune to the US fiscal crisis, but that would change if fighting between Republicans and Democrats continued past the October 17 debt ceiling deadline.
Kathy Lien, analyst at BK Asset Management, said the Australian dollar was likely to strengthen this week. "The Australian dollar ... appears poised for more gains on a technical basis but that will depend on the developments in Washington," she said.