Local investors will be looking to economic data out this week for signs business confidence is improving, as nervousness over the US government shutdown continues to rule international markets.
US Treasuries dropped for the first time in four weeks last week on bets that lawmakers would end the partial shutdown of the US government 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, recording a 1.9 per cent loss for the week.
While analysts said investors were keen to see a resolution to the US deadlock, more important were improvements to local business conditions and employment figures.
"The Reserve Bank has been hoping there would be improvement in confidence after change of government," ANZ economist Ivan Colhoun said. "Data out this week will hopefully show that conditions have improved, particularly in manufacturing and retail, where they have been struggling.
"If they don't improve, we've been in this position for a while now. Whereas if they improve, policy is working, and things are getting better."
National Australia Bank business confidence and conditions surveys will be released on Tuesday, and the Westpac consumer confidence survey is due out on Wednesday. Employment data will be released on Thursday.
Mr Colhoun said the Australian sharemarket had so far 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.
"If the shutdown generates into the deadline being missed and the US having any sort of default, the impact on the market will be much larger. And that can affect confidence," he said.
Kathy Lien, analyst at BK Asset Management, said the Australian dollar was likely to strengthen this week on further US dollar weakness. "The Australian dollar looks poised for more gains on a technical basis, but that will depend on developments in Washington," she said.