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Aust dollar closes higher

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AAP

2012-12-28

The Australian dollar has closed higher, thanks to a rise in iron prices and gains on the local stock market.

At 1700 AEDT on Friday, the local unit was trading at 103.74 US cents, up from Thursday's close of 103.57 US cents.

The Australian dollar rallied during overnight offshore trading to open at 103.77 US cents at the start of the local trading day.

But since 0700 AEDT, the currency has stuck to a reasonably tight trading range, moving between a low of 103.62 US cents and a high of 103.89 US cents.

St George chief economist Hans Kunnen said the local dollar's rise was due to firmer commodities prices and positive sentiment from equity markets in the region.

"I'd put it down to rising iron ore prices to be honest," Mr Kunnen said.

"Part of it is that you watch the equities and you watch the Aussie dollar, on a day-to-day basis they move together, so we've having a firm day in local markets, there could be some offshore buying of Aussie equities.

"It's thin trade, iron ore prices are up and equities are up."

Iron ore prices climbed about three per cent during the overnight session.

During the day, the Australian dollar peaked at 89.835 yen, the currency's highest level against the Japanese unit since April 2011.

Mr Kunnen said the yen has been losing ground ever since the new Japanese Prime Minister Shinzo Abe came to office and pledged to work with the Bank of Japan to to stimulate the nation's economy.

"It's strengthening against the yen simply on the basis that they're printing money and they've abandoned their low inflation target, so down goes their currency," Mr Kunnen said.