THE Australian dollar closed lower in response to a strengthening in the US dollar on the back of more positive US unemployment news.

At 1700 AEDT, the Australian dollar was trading at $US0.9154/57, down 0.77 per cent from Friday's close of $US0.9224/26.

During the domestic session, the local unit traded between $US0.9114 and $US0.9172.

IG Markets analyst Chris Weston said the local unit lost ground after the release of data on Friday night showing a slight improvement in US unemployment.

"The strong stringent bears would probably be saying that we're seeing an unwinding in the carry trade now that markets are factoring in a 53 per cent chance that we're going to see rates raise 25 basis points in June," Mr Weston said.

The US economy lost 11,000 jobs in November, compared to market expectations of a 125,000 fall, the US Department of Labor said on Friday.

The US unemployment rate fell 0.2 percentage points to 10 per cent in November.

The report lifted investor expectations that the US Federal Reserve could begin raising interest rates sooner than previously expected if the US economy continued to improve.

The US Federal Funds rate is in a target range of zero to 0.25 per cent.

"So that's why we saw a lot of strength in the dollar as people reposition themselves for stronger US growth," Mr Weston said.

The market would probably see this theme carry on in the next couple of days, he said.

"People are starting to see growth in the US dollar through the labour market and they're trying to price in potential interest rates next year, that's why we're seeing some modest US dollar strength," he said.

"We're seeing the Australian dollar weaker on the back of that so as people see more growth in the economy, that will weaken the Aussie dollar in the short-term."

He forecast a strong Australian dollar in the longer term.

"I do see a bit of weakness in the Aussie dollar over the next couple of days, but with unemployment at 10 per cent in the US, we're not going to have rates put up in 2010.

"I think we're more likely to see stimulus being withdrawn from the system as opposed to rates being put up."

He said there were still some elements of doubt about the US recovery.

Meanwhile the Australian sharemarket closed lower as weaker commodity prices pulled back resources stocks.

At the 1615 AEDT close, the benchmark S&P/ASX200 index had fallen 25.7 points, or 0.55 per cent, to 4676.5, while the broader All Ordinaries index had reversed 26 points, or 0.55 per cent, to 4695.2.

On the Sydney Futures Exchange, the December share price index futures contract lost 30 points to 4,676, on volume of 26,927 contracts, according to preliminary calculations.

IG Markets research analyst Ben Potter said a sharp rise in the US dollar had sent commodity prices south, and financial stocks were also weaker.

The US dollar lifted in the wake of better-than-expected US jobs data for November, which prompted speculation that US interest rates would rise.

"The market looks tired. Investors seem happy to lock in profits following a tough year, seemingly wanting to rule a line through 2009 and come back refreshed in the new year," Mr Potter said.

"Having said that, the market doesn't seem overly concerned as volumes are light and selling is orderly."