THE dollar was trading near a two-year high as investors were attracted to the relatively high, and potentially rising, interest rates on offer.
At 5pm (AEST), the dollar was trading at 95.88 US cents, almost one cent higher than Friday's close of 94.94 cents. The currency earlier reached 96.24 cents, the highest since July 2008.
The currency reached a low of 95.74 cents during the day.
Westpac chief currency strategist Robert Rennie said the dollar was supported by expectations that the Reserve Bank of Australia (RBA) would increase rates next week or in the coming months.
"Australia has tremendously attractive yields and that clearly are the driver of the Aussie dollar," Mr Rennie said.
Australia's benchmark cash rate is 4.5 per cent, with the futures market pricing in a better than even chance of a 25 basis point increase next week. That would take the rate to 4.75 per cent.
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The RBA board meets on Tuesday week for its next monthly monetary policy meeting.
Australia's cash rate compares to the zero to 0.25 per cent rate in the US, the one per cent rate for the Euro area and 0.1 per cent in Japan.
Mr Rennie said the dollar was unlikely to fall below 95.50 US cents while it would find it difficult to get far above 96.60 cents.
At 5pm (AEST), the dollar was at 80.77 Japanese yen, up from Fridays's close of 80.52 yen, and at 71.20 euro cents, down from its previous close of 71.31.
The euro finished at 1.3467 US dollars, up from 1.3315 US dollars, and at 113.44 yen, up from 112.92.
The US dollar was at 84.25 Japanese yen, down from 84.82 yen.
Meanwhile, the bond market ended weaker today after drifting in narrow ranges, following a retreat in the overnight session on Friday in line with US Treasuries.
At 4.30pm (AEST) on the Sydney Futures Exchange, the December 10-year bond futures contract was at 94.840 (implying a yield of 5.160 per cent), down from Friday's close of 94.920 (5.080 per cent).
The December three-year bond futures contract was at 95.040, (4.960 per cent), down from 95.130, (4.870 per cent).
The main factor undermining the US Treasury market on Friday was the better than expected durable goods orders report.
It showed orders excluding the volatile transport component were up by 2.0 per cent, seasonally adjusted, in August.
The positive economic news encouraged investors into shares rather than bonds and helped to push the yield on the 10-year US Treasury benchmark issue.
The Australian market followed in lockstep though the overnight futures session but was mired in narrow ranges through today, with firmer share prices preventing a rally but not inducing further losses for bonds.
"Equities were a bit stronger but we'd already sold off on Friday night, so there wasn't a lot of reason for us to move too much, so we had a fairly quiet day," said Deutsche Bank fixed income strategist David Planck.
"The real issue for the market, looking forward, is speculating about the size of quantitative easing by the Fed (the US Federal Reserve) - whether they do it in November and what effect is has on bond yields."
The 90-day bank bill closed at 4.850 per cent, up from Friday's close of 4.840, while the 180-day bank bill rate was at 5.130, down from Friday's close of 5.150.
The RBA's Australian dollar trade weighted index (TWI) was at 72.6, up from from Friday's close of 72.3.
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