THE dollar closed higher today as a positive session on equities and a lift in interest rate expectations by the central bank underpinned the local currency.
At 5pm AEST, the dollar was trading at US87.72c, up 0.37 per cent from yesterday's close of 87.40c.
From 7am AEST, the local unit traded between US87.47c and 87.80c.
RBC Capital Markets senior currency strategist Sue Trinh said the switch in market pricing of interest rate movements following stronger than expected jobs data yesterday had supported the Australian dollar.
The nation's unemployment rate was steady at a 17-month low of 5.1 per cent in June, the Australian Bureau of Statistics said yesterday.
A total of 45,900 jobs were created in June, triple the market forecast of 15,000, the ABS said.
"There has been an upward re-rating of RBA rate expectations," Ms Trinh said from Hong Kong.
"The market went from pricing in a rate cut by the RBA of about 10 per cent chance for the August meeting to a more realistic 25 per cent chance (of a rise) on the back of less dovish RBA and stronger employment data on Thursday."
Expectations of higher interest rates in Australia increase the attractiveness of the currency for investors searching for yield differential.
Australia's cash interest rate of 4.5 per cent compares favourably to Japan's 0.1 per cent and the US Federal Funds rate of zero to 0.25 per cent.
Ms Trinh said the lift in equity markets underpinned the local currency.
Wall Street closed firmer yesterday, with The Dow Jones Industrial Average ending up 1.2 per cent.
Australia's benchmark S&P/ASX200 index closed up 0.9 per cent yesterday, while Japan's Nikkei-225 index was 0.52 per cent higher.
"Meanwhile the recovery in global stocks off the lows has also provided a shot in the arm and a boost to risk sentiment in helping to support cyclical currencies like the Aussie," she said.
At 5pm the dollar was at 77.66 Japanese yen, up from yesterday's close of 77.27 yen, and at 68.99 euro cents, down from 69.12 euro cents previously.
The euro finished at 1.2716 US dollars, up from Thursday's close of 1.2646 US dollars and at 112.56 yen, up from 111.79 yen.
The US dollar was at 88.52 Japanese yen, up from 88.40 previously.
Meanwhile, the Australian debt market closed little changed.
At 4.30pm AEST on Friday, the yield on the Commonwealth Government April 2020 bond was 5.122 per cent, up from yesterday's close of 5.108 per cent, while the May 2013 bond was at 4.553 per cent, up from 4.548 per cent previously.
On the Sydney Futures Exchange, the September 10-year bond futures contract was at 94.885, up from yesterday's close of 94.865, while the September three-year bond futures contract was 95.350, up from 95.340 previously.
Nomura Australia chief economist Stephen Roberts said the local bond market traded in a narrow range in the absence of economic data on Friday.
"Basically, it has not done much," Mr Roberts said.
At 4.30pm AEST, the 90-day bank bill rate was at 4.900 per cent, where it closed on yesterday, while the 180-day bank bill rate was at 5.000 per cent, where it closed previously.
At 1600 AEST, the RBA's trade weighted index was at 68.6, up from yesterday's close of 68.3.
