The Australian dollar rose off its lows and back towards 86 US cents on Monday on expectations interest rates here will rise this week, though it fell sharply against the yen as regional stock markets wobbled again.
The low-yielding Japanese currency was broadly stronger, rising to a four-month high versus the US dollar on concerns about a credit squeeze reducing corporate take-over activity and potentially crimping growth in the world's biggest economy.
The Aussie fell as much as 2.5 percent to 99.83 yen on Monday from Friday's intraday high of 102.41 yen, though not as steep as the fall in the New Zealand dollar/yen cross, which plunged as much as 3.5 percent.
"The outlook for both currencies will be very much dependent on the overall climate for carry trades," said Ashley Davies, currency strategist at UBS in Singapore.
The Aussie dollar was quoted at $0.8557/59, compared with $0.8577/80 here late on Friday, according to Reuters data. It ranged from $0.8521 to $0.8562. The Aussie was quoted at 100.60/70 yen, and it rose to a two-month high of NZ$1.1279, up from NZ$1.1174 here on Friday.
Underpinning the Aussie are expectations the Reserve Bank of Australia (RBA) will lift interest rates by 25 basis points to an 11-year high of 6.50 percent on Wednesday to fight inflation, and follow up with another rate increase late this year or in 2008.
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