THE Australian dollar closed more than US0.5c higher today as an upbeat assessment of the economy by the Reserve Bank raised expectations of an interest rate rise.

At 1700 AEDT, the Australian dollar was trading at $US0.9134/37, up 0.68 per cent from yesterday's close of $US0.9072/75.

During the local session, the unit traded between $US0.9092 and $US0.9139.

In its quarterly statement on monetary policy released on Friday, the Reserve Bank of Australia (RBA) upgraded its forecasts for the Australian economy for to reach its long-term trend by the second half of 2010.

The RBA forecast that gross domestic product (GDP) will grow by 1.75 per cent in calendar 2009 before expanding by 3.25 per cent in the year to December 2010.

This is an upward revision to August's statement where the RBA forecasted GDP to grow by 0.5 per cent in calendar 2009 and expand by 2.25 per cent over the year to December 2010.

The RBA said the increase in its growth estimates reflected overall stronger economic data since August and an improved outlook for the local economy.

Senior currency analyst with financial markets research group Forecast, Lee Wai Tuck said the improved outlook for the Australian economy in the RBA's statement on monetary policy had currency markets expecting more rate rises from the central bank.

The RBA lifted the overnight cash rate by 25 basis points to 3.5 per cent this week, its second monthly rise in a row.

"It seems to be slightly more hawkish than expected,'' Mr Lee said from Singapore.

"The RBA are actually pointing to more rate hikes.

"We are looking towards another 25 basis point hike on December 1, to 3.75 per cent.''

Mr Lee said the RBA would continue to lift interest rates after the upgrade to its growth forecasts.

"There are more rate hikes ahead and that has supported the Aussie (dollar)'' he said.

Economic data due during Friday's offshore session (AEDT) includes the release of US non-farm payroll numbers for October.

Financial markets forecast a loss of 175,000 jobs in October, down from a fall of 263,000 the previous month.

The unemployment rate in the US is forecast to rise 0.1 percentage points to 9.9 per cent in October.

"While the market has forecast 9.9 per cent, it would not surprise if it is 10 per cent,'' Mr Lee said.

He forecasts the Australian dollar to trade between $US0.9050 and $US0.9200 during tonight's offshore session.

Meanwhile, the Australian share market closed higher today, rebounding from two-month lows yesterday and buoyed by a more optimistic assessment of the economy by the Reserve Bank.

At 1615 AEDT, the benchmark S&P/ASX200 index was up 86 points, or 1.91 per cent, at 4594, while the broader All Ordinaries index had risen 85.2 points, or 1.89 per cent, to 4604.4.

On the Sydney Futures Exchange, the December share price index contract was 85 points higher, at 4597 points on a volume of 27,055 contracts.

The local bourse opened in positive territory, thanks to a strong finish on Wall Street, and extended its gains through the afternoon after the release of the Reserve Bank of Australia's latest growth and inflation forecasts.

"Today the market received a warm feeling from the Reserve Bank commentary," Bell Potter senior adviser Stuart Smith said.

"It engendered confidence in the market."

The RBA said in its quarterly statement on monetary policy that gross domestic product was expected to rise by 1.75 per cent in the 2009 calendar year, before improving to a 3.25 per cent growth rate in 2010.

This was up from 0.5 per cent for 2009 and 2.25 per cent for 2010, forecast in the RBA's previous quarterly statement.

"We don't want them wildly talking about the economy, we certainly don't want to be talking it down, so it is a nice, steady-as-she-goes scenario," Mr Smith said.

Gains were broad-based today, with mining and resources stocks among the best performers.

BHP Billiton was up 96 cents, or 2.63 per cent, at $37.40 and Rio Tinto was up $2.41, or 3.85 per cent firmer at $65.00.

BHP said on Friday afternoon that repairs to the main haulage shaft at its Olympic Dam uranium and copper mine in South Australia would begin later this month.

Full production at Olympic Dam was expected to begin no later than the end of March next year.