The Australian dollar has closed higher, finishing the local session above $US0.7200 for the first time in three months after gaining strongly during offshore trading on improved risk appetite.
At 1700 AEDT, the Australian dollar was trading at $US0.7222/27, up 1.1 US cents, or 1.5 per cent, from Tuesday's close of $US0.7115/20.
During the day, the local unit moved between a low of $US0.7189 and a high of $US0.7267.
The last time the Australian dollar closed above $US0.7200 was on October 7 last year, when the unit ended the local session at $US0.7268/75.
Supported by a positive finish on Wall Street and firmer commodities prices in New York, the Australian dollar started the local trading day at $US0.7249/53 at 0700 AEDT.
The unit managed to hold above $US0.7200 during Asian trading, in what Deutsche Bank foreign exchange strategist John Horner said were "muted" trading conditions.
"Markets are not reacting too much to data in Australia," Mr Horner said.
"The Australian dollar is still very much being driven by risk appetite and price action in equities and what's going on in commodity markets.
"That's providing a bit of a boost."
In terms of local economic data, figures from the Australian Bureau of Statistics showed retail sales rose by 0.4 per cent, seasonally adjusted, in November, well above market expectations of an 0.3 per cent decline.
The Australian dollar had benefitted from a weaker US dollar and stronger equity markets over the Christmas/New Year break, but Mr Horner said he did not expect the local currency's recent appreciation to last given the gloomy economic outlook.
"We still think given the headwinds confronting the global economy and the breadth and depth of the global slowdown, the recent strength won't be sustained," Mr Horner said.
"Look for a reversal of the recent move."
Market players will be focused on the release of the US ADP Employment report for December during Wednesday night's (AEDT) offshore session.
The report serves as a preview of US non-farm payrolls - a key employment indicator - due later in the week.
"Bad employment data is almost expected now in the US and it's going to take something pretty abysmal to have too much impact," Mr Horner said.
At 1600 AEDT, the Reserve Bank of Australia's trade weighted index was at 58.6, up from Tuesday's close of 57.9.
