THE Australian dollar closed lower after investors were caught between domestic inflation concerns and news of booming Chinese growth.
At 5pm (AEDT), the Australian dollar was trading at 91.31 US cents, down from yesterday's close of 91.63 cents.
The unit opened the domestic session at 90.81 US cents, its the lowest open since January 4.
Since 7am today, the local unit traded between 90.73 US cents and 91.51 cents.
Much of the trading day's price action came after Reserve Bank of Australia board member and businessman Graham Kraehe said Australia risked higher inflation on the back of an emerging labour and housing shortages.
"Our unemployment has clearly now peaked. We've got increasing and continuing demand for employment in the resources sector that will put pressures on wages,'' Mr Kraehe was reported to have told Dow Jones Newswires.
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RBC Capital Markets senior economist Su Lin Ong said the local unit firmed on the comments.
"Those comments have been digested this afternoon and that's leant a little bit of support (to the Australian dollar),'' she said.
"It's suggesting that not only may monetary policy be at neutral but may have to move into a more restrictive setting.''
Also in the domestic session China published its December quarter gross domestic product figures, showing its economy grew by 10.7 per cent.
The quarterly growth exceeded most forecasts and brought 2009's full-year expansion to 8.7 per cent. The Chinese government had forecast 8.3 per cent growth for the year.
Ms Ong said there was an initial knee-jerk sell off with investors fearing China would start tightening its monetary policy in response to the better than expected figures.
