The dollar has risen to a four-month high, reviving expectations of another Reserve Bank rate cut as US budget and debt-ceiling turmoil reduced prospects of a near-term slowing of the Federal Reserve's stimulus program.
Global markets were nervous but fairly muted this week, rallying modestly after uncertainty over the political impasse that threatened to plunge the US into a debt default was lifted just hours before a US Treasury deadline.
The dollar gained about US1¢ early on Friday to trade as high as US96.47¢ - a level it has not touched since mid-June - as the US dollar weakened across a range of currencies. It was buying US96.22¢ late on Friday.
The dollar's strength, which has seen the currency recover about 8 per cent of its value since sinking to US89.01¢ in late August, came as RBA governor Glenn Stevens said in Sydney a "lower currency than this would be helpful in rebalancing the growth sources of the economy".
"I'd prefer it to be lower than this rather than higher," he said.
The US government shutdown and debt-ceiling crisis was estimated to have eaten into US fourth-quarter GDP. It raised the possibility that the Fed could keep its $US85 billion-a-month stimulus program running until the economy shows more sustained signs of growth.
The stimulus program began in September 2012 and has seen investors flock to riskier assets, such as the Australian dollar.
The short-term debt deal, which will see the US government funded until January 15 and raise the debt ceiling until February 7, also raised the likelihood of another round of fiscal battles.
Analysts had expected the Federal Reserve to start winding back its program from December. But some have since pushed back their expectations to early 2014.
Federal Reserve Bank of Chicago president Charles Evans said on Thursday: "It is not yet time to remove accommodation.
"I believe this program should continue until we are confident there has been a sustainable improvement in the labour market."
Expectations that tapering would be delayed have weighed on the US dollar, with the greenback declining against a range of currencies.
"While the US quantitative easing taper is delayed and global growth remains stable at, or close to, trend, the Australian dollar may grind gradually higher," RBS senior currency strategist Greg Gibbs said.
Westpac chief economist Bill Evans said the tapering delay would be supportive of an RBA rate cut.
Third-quarter CPI data to be released on Wednesday is expected to point to a subdued inflation outlook, leaving the Reserve Bank room to again reduce the cash rate.