The Australian dollar rose on buoyant Asian bourses today and were on track to post healthy gains this month even as Europe remains a hot spot and markets price in an Australian rate cut next week.

The dollar climbed to its highest in a week at $US1.0474, having bounced from $US1.0328 on Wednesday, its lowest since September 11.

The dollar has recently been supported by a wave of short-covering and stop-losses after an attempt on the downside fizzled out. It looked set to end the month 1.4 per cent higher and last fetched $US1.0460.

Stronger Asian bourses, particularly in China where traders cited position-squaring ahead of a week-long holiday, lifted risk sentiment.

Having pierced resistance levels near $US1.0410 and $US1.0465, the dollar may reclaim $US1.0500 and even take another crack at $US1.0625, a six-month peak touched in September.

Expectations of a possible rate cut could put a lid on momentum, with interbank futures showing a two-in-three chance of a cut in the 3.5 per cent cash rate. But economists were not so convinced.

Thirteen out of 19 surveyed by Reuters forecast the Reserve Bank of Australia would keep rates on hold on Tuesday, believing the bank will wait for confirmation of tame inflation later in the month before pulling the trigger on a cut. Six expected an easing next week and almost all saw a move before year-end. The real surprise would be no easing and a balanced policy statement.

"If it indicates they're happy with current settings, something markets are largely betting against, the Aussie could go ballistic," said David Scutt, a trader at Arab Bank Australia.

Should the RBA keep rates on hold, Scutt forecasts a possible test of $US1.0625.

Australian government bonds were mixed, having climbed to multi-week highs yesterday. The three-year contract eased 0.02 points to 97.630, while the 10-year contract edged up 0.005 points to 97.090. It touched a two-month peak of 97.130 in the previous session.

Reuters