At 12pm (AEDT), the Australian dollar was trading at $US0.6561/64, up from Thursday's close of $US0.6500/04.
During the morning, the local unit traded between a mid-morning low of $US0.6541 and an early high of $US0.6594.
The domestic currency stayed well above Thursday's closing levels during the morning as a gains of more than 2 per cent on the local share market saw offshore traders buy the Australian dollar.
Still, the Australian dollar drifted from the beginning of the local session as investors held their positions ahead of key domestic economic data next week.
"Over the last few days it's rallied quite strongly," ICAP senior economist Adam Carr said.
Financial market expectations for a 100 basis point rate cut from the Reserve Bank next week have not curtailed demand for the Australian dollar, because other major central banks are also expected to cut interest rates.
A 1 per cent Australian rate cut next week, as expected by debt futures markets, would take the cash rate to 4.25 per cent for the first time since May 2002.
Traders are also holding their positions as they await Australian gross domestic product data for the September quarter, due out on Wednesday.
Mr Carr said that with the US markets closed for Thanksgiving, the Australian dollar was likely to trade within a tight range on Friday, and would fall to $US0.6530 this afternoon if it dropped below the key $US0.6550 level.
"I don't think there's a catalyst for it to slip below that," he said.
He said the Australian dollar was likely to test late October's five and a half year low, close to $US0.6000, by the end of 2008.
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