THE Australian dollar closed 1.7 per cent firmer as sentiment from strong gains on the local share market more than offset financial market expectations for a bigger than usual interest rate cut tomorrow.

At 1700 AEDT, the Australian dollar was trading at $US0.6823/28, up more than one US cent from Friday's close of $US0.6711/16.

During the day, the local currency traded between an early morning low of $US0.6675 and a late afternoon high of $US0.6847.

The Australian dollar opened weaker today before recovering in morning trade as foreign exchange markets took their cues from a strong Friday night performance on Wall Street.

Risk appetite soared in the afternoon as the Australian share market's benchmark S&P/ASX200 index climbed to finish up 5.06 per cent, putting on an even better showing than the New York Dow Jones Industrial Average's 1.57 per cent gain on Friday.

Westpac chief currency strategist Robert Rennie said the Australian dollar climbed as traders focused on healthy share market gains rather than weak domestic economic data.

"The tremendous weakening we saw in the Australian dollar in August, September and October arguably had less to do with domestic factors and had more to do with the credit crisis and other factors in weakening offshore markets," he said.

"So it would be unfair to sell the Australian dollar down on domestic factors while equity markets have registered reasonable gains."

All 15 economists surveyed by AAP are expecting a bigger than usual 50 basis point interest rate cut tomorrow, which would take the cash rate to 5.5 per cent for the first time since May 2006."

Mr Rennie said that with a half a percentage point rate cut priced in by financial markets, the Australian dollar was more likely to sail closer to $US0.7000 tomorrow if share markets continued to rally.

Traders would buy or sell the Australian dollar based on what the Reserve Bank of Australia said it in accompanying monetary policy statement after its board held its regularly monthly meeting tomorrow.

Mr Rennie said further improvements in equity markets would push the Australian dollar back above $US0.7000 during November.

AAP