THE Australian dollar closed lower today as a bigger than expected fall in quarterly retail sales data dampened market expectations for a rate rise by the central bank next month.

At 5pm eastern daylight time, the Australian dollar was trading at $US0.9014/16, down from yesterday's close of $US0.9031/34.

During today's local session, the unit traded between $US0.8955 and $US0.9047.

Westpac currency strategist Jonathan Cavenagh said weaker retail sales allied with the Reserve Bank of Australia's (RBA) statement, following its rate rise on Tuesday, had lowered the chances of another hike by the central bank on December 1.

Retail trade fell 0.2 per cent in September, seasonally adjusted, the Australian Bureau of Statistics (ABS) said on Wednesday.

Over the September quarter, retail sales fell by 0.4 per cent.

The median market forecast was for retail sales to have risen by 0.5 per cent in September quarter.

On Tuesday, the RBA lifted the cash rate by 25 basis points to 3.5 per cent, its second consecutive monthly rise.

"With the risk of serious economic contraction in Australia now having passed, the board's view is that it is prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," RBA governor Glenn Stevens said in Tuesday's statement.

Mr Cavenagh said the retail sales data and the RBA's comments had weighed on the local currency over the past 24 hours.

"The retail sales was a bit disappointing when it came in negative when the market was expecting a positive," he said.

"The market had a 25 basis point hike fully priced in (December), but it basically now has about a 60 per cent chance of a 25 basis point move," Mr Cavenagh said.

"The combination of yesterday's lessen gradually rhetoric from the RBA and today's retail sales have combined to dampen expectations of a rate move in December."

Economic events due during Wednesday's offshore session include the US Federal Open Market Committee's (FOMC) decision on monetary policy.

The FOMC, the US Federal Reserve's policy-making arm, is expected to leave the US federal funds rate at a target range of zero to 0.25 per cent.

Mr Cavenagh said the accompanying statement following the FOMC's decision would be important for many currencies.

"If the Fed hints that they maybe changing at some stage in the future, perhaps sooner than what the market thinks, it will give the US dollar a boost," he said.

"That is not our forecast, but it is a risk."

Mr Cavenagh forecast the Australian dollar to trade between $US0.8950 and $US0.9090 during Wednesday's offshore session (AEDT).

Meanwhile, the Australian share market closed slightly higher today after a positive reaction to Westpac's earnings result, a strong performance by gold stocks and some encouraging economic data.

At 4.15pm EDT the benchmark S&P/ASX200 index was up 8.6 points, or 0.19 per cent at 4540.1, while the broader All Ordinaries index advanced 7.6 points, or 0.17 per cent, to 4547.6.

On the Sydney Futures Exchange at 4.16pm EDT, the December share price index contract was up 15 points at 4,533 on a volume of 24,305 contracts.

The Australian market opened firmer but dipped into negative territory during afternoon trade before edging higher towards the close.

Westpac reported a 10.7 per cent decline in full year profit for the year to September 30, but the bank said its business has strong momentum going into fiscal 2010 as the bad debt cycle stabilised.

Its shares closed up 36 cents, or 1.42 per cent, to $25.79

Commonwealth Bank ended nine cents higher at $51.37, ANZ gained 15 cents to $22.73 and Macquarie Group was up $1.02 cents, or 2.17 per cent, at $48.09.

NAB closed down 24 cents, or 0.85 per cent, at $28.15.

Austock Securities senior client adviser Michael Heffernan said the Westpac result supported the broader market.

"The positive influences on the market was the result we had from Westpac Bank, which wouldn't set your ears back but it exceeded most expectations," Mr Heffernan said.

Earlier, the Australian dollar was lower at noon after  retail trade figures doused currency dealers' hopes for another interest rate rise in December.

At 1200 AEDT, the Australian dollar was trading at $US0.9010/13, down from Tuesday's close of $US0.9031/34.

From 0700 AEDT, the unit traded between $US0.9048 and $US0.8979, according to IRESS data.

ICAP economist Adam Carr said the September retail sales data, released at 1130 AEDT, had not supported the case for another 25 basis point interest rate rise in December.

"The Aussie is down about 20-odd pips or so,'' Mr Carr said.

"It was a bit of knee-jerk reaction, I think, to the retail data, but we'll probably see it strengthen throughout the day.

"Once the market digests the news and realises it's not going to swing the RBA one way or the other, we'll swing back.''

Australian retail trade at current prices fell 0.2 per cent in September to a seasonally adjusted $19.719 billion, from $19.753 billion in August, the Australian Bureau of Statistics (ABS) said on Wednesday.

Over the September quarter, retail sales fell by 0.4 per cent to $56.959 billion seasonally adjusted.

The median market forecast was for retail sales to have risen by 0.5 per cent in September and to have fallen 0.4 per cent in the September quarter.

Yesterday, the RBA raised the cash interest rate by 25 basis points to 3.50 per cent.

It was the Bank's second rate rise in as many months.

In a statement accompanying the decision, RBA governor Glenn Stevens said the RBA board had found it ``prudent to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker''.

Since the statement, some market analysts have lowered their expectations of a December rate rise.

Mr Carr said the market would turn its attention to the US Federal Reserve's monthly interest rate decision during Wednesday's offshore session.

The Federal Open Market Committee, the policy making arm of the Fed, is expected widely to leave US interest rates at their present setting of zero to 0.25 per cent.

Some market analysts are hoping for aggressive language on the future of US interest rates, however.

"I think they'll be disappointed,'' Mr Carr said.

"I suspect what we'll see is US dollar weakness and a higher Aussie.''

Meanwhile, the Australian share market was flat at noon after a mixed lead from the US and despite gains among financial and gold stocks.

At 1200 AEDT, the benchmark S&P/ASX200 index was up 2.7 points, or 0.06 per cent, at 4,534.2 points, while the broader All Ordinaries index had risen 2.4 points, or 0.05 per cent, at 4,542.4 points.

On the Sydney Futures Exchange, the December share price index contract was 11 points higher at 4529 on a volume of 15,346 contracts.

CMC Markets analyst David Taylor said the main banks and gold stocks were pushing the market slightly higher despite little direction from offshore.

"The major banks are driving the market with better-than-expected results from Westpac today,'' Mr Taylor said.

"We're also seeing money flowing into the gold stocks but there's weakness among property and consumer staples.''