THE Australian dollar closed lower after bigger-than-expected interest rate increases today by two of the four big mortgage lenders.
The increases prompted traders to ease their expectations about further monetary tightenings by the Reserve Bank.
At 1700 AEDT, the Australian dollar was trading at $US0.0.9224/26, down 0.06 per cent from yesterday's close of $US0.9280/83.
During the domestic session, the local unit traded between $US0.9215 and $US0.9253.
Nomura Australia chief economist Stephen Roberts said the local unit dropped after the ANZ and Commonwealth Bank raised their lending rates by more than the Reserve Bank's 25 basis-point increase earlier this week.
ANZ lifted its standard variable mortgage rate by 35 basis points to 6.66 per cent, effective from Monday, December 7.
The Commonwealth Bank said it would increase its standard variable home loan rate by 37 basis points to 6.61 per cent, effective Wednesday, December 9.
"My suspicion is that the rate increase that came through with the Commonwealth Bank and also from the ANZ just switched people's thinking towards maybe a little less in the way of monetary policy tightening, rather than more," Mr Roberts said.
The RBA on Tuesday increased its base cash interest rate by 25 basis points to 3.75 per cent, the third successive monthly increase of the same amount.
Westpac Banking Corporation said on Tuesday, just hours after the RBA decision, that it would increase its standard variable home loan rate by 45 basis points to 6.76 per cent, effective from today.
National Australia Bank yesterday raised its variable mortgate rate by 25 basis points, to 6.49 per cent.
Mr Roberts said he now expected a weaker domestic currency over the next session or two.
"It's a little bit dependent on what happens with the (US November) non-farm payrolls tonight," he said.
"Our view is the non-farm payrolls will come in probably better than the market consensus.
"In those circumstances, there might be a little bit of a reprieve for the Australian dollar on that. because what tends to happen is the US paradoxically comes under pressure and tends to come down a little."
Mr Roberts forecast a trading range for the Australian dollar of between a low 92 US cents to mid 92 US cents over the weekend.
Meanwhile, the Australian share market closed firmly in the red today after mining stocks led a broad-based decline, following a weakening of commodity prices overnight.
The benchmark S&P/ASX200 index closed down 72.4 points, or 1.52 per cent, at 4,702.2 points, while the broader All Ordinaries index fell 68.1 points, or 1.42 per cent, to 4,721.2 points.
On the Sydney Futures Exchange at 1615 AEDT, the December share price index contract was 85 points lower. at 4,703 on 26,872 contracts.
"It has been a bit of a setback today, but I tell you it is a great contrast from what happened on Monday, which in turn was a contrast to what happened last Friday," said Austock Securities senior client adviser Michael Heffernan.
"You have got to expect the market to bounce around when you have had very strong performances over a period of time," Mr Heffernan said.
"We are taking another pause and a breath today," he said.
He said big miners were hit hardest, following weak commodity prices overnight.
"In the top 20 there is not one shred of green there," Mr Heffernan said.
At 1615 AEDT shares in BHP Billiton were down $1.07 at $41.40 and Rio Tinto was $1.66 weaker, at $71.85.
