The Australian dollar steadied just below 76 US cents, supported by firmer metal prices, but trading lacked momentum with investors holding back due to a US market holiday on Monday and Australian data during the week.
The Aussie dollar has seesawed in a $0.7466-$0.7749 range over the past two weeks, hostage to wild price swings on commodity markets. Tame US inflation data on Friday sparked small gains in the US dollar, Treasuries, equities and commodities. Metals held their gains on Monday, while the US dollar eased.
"There is some evidence that investor appetite for risk is improving again," said Ashley Davies, UBS currency strategist.
One Aussie bought $0.7577/81, similar to levels late here on Friday, but it firmed slightly against the yen, euro and sterling. It had traded in a $0.7559-$0.7610 range offshore on Friday.
"The recovery in commodity prices and investor risk-appetite leaves the Aussie on a better footing," said John Kyriakopoulos, currency strategist at National Australia Bank.
It was well placed to benefit from any stumble in the US dollar but continued to struggle above 76 US cents, he said.
Sue Trinh, senior currency strategist at RBC Capital Markets, said further volatility was still a risk but a protracted commodity sell-off was unlikely.
"From current levels, a rapid fall to strong support at $0.7486 would represent a short-term technical buying opportunity," she said.
Australia is the world's second-biggest producer of bullion behind South Africa and is a major exporter of industrial metals, so the currency tends to track non-rural commodity prices. Still, over 60 percent of the fall in metal prices from May 11 to May 19 has now been unwound.
Concern about an acceleration in US inflation and higher US interest rates was one of the drivers of this month's pull-back in commodities, on fears that higher borrowing costs would stymie US economic growth and demand for raw materials.
Opinion is divided on whether the Federal Reserve will take a break as early as next month in a tightening campaign that has been running since June 2004.
US manufacturing and May non-farm payrolls data, due on Thursday and Friday respectively, are the next hurdle as analysts try to second-guess whether the Fed will raise rates at its next policy meeting on June 28-29.
Before then, a barrage of data is due in Australia, including April building approvals and retail sales reports on Tuesday.
But the data predates the central bank's surprise May rate rise and may therefore have little market impact, analysts said. The Reserve Bank of Australia lifted the cash rate to 5.75 percent on May 3 and was widely expected to wait until at least the next quarterly consumer price index reading, due in late July, to gauge whether another increase was needed.
Australian bill futures pointed to around a 70 percent chance of another tightening by year-end, offering some protection to the Aussie dollar's yield advantage over major currencies.