Australian Dollar Finds Support on Rate Outlook

The Australian dollar rose to a session high of USD 0.9172 on Friday after tumbling more than 2 % from its recent peak in offshore trade, supported by expectations that domestic interest rates were headed higher in the near term.

Financial markets are factoring in a 90 % chance that the Reserve Bank of Australia will lift its key rate to 6.75 % when it announces its decision next Wednesday, to check inflation pressures building in the economy.

Financials Lead Asian Stocks Lower

Asian stocks fell nearly 2 % on Friday, led by financial shares after broker downgrades of U.S. banking giant Citigroup sparked worries about further fallouts from credit market problems.

Those concerns dampened appetite for riskier assets, boosting safe-haven Japanese government bonds and then helping the low-yielding yen hold most of Thursday's sharp gains, while snuffing out the rally in U.S. crude.

Yen Slips Despite Stocks Fall

The yen edged down against the dollar on Friday, shrugging off a drop in Asian stocks, as investors awaited U.S. jobs data to shed light on what the Federal Reserve may do at its next policy meeting in December.

The yen gained across the board the previous day after renewed fears of more subprime problems sparked a stock sell-off, sapping investors' risk appetite and prompting unwinding of yen carry trades.

But the yen's rally was short-lived as investors realised there were few reasons to buy the low-yielding Japanese currency other than to square carry trades, given expectations the Bank of Japan will take its time in raising interest rates.