The Australian dollar is higher, as it goes into stabilisation mode after falling 1.5 per cent last week.

At 0700 AEDT on Monday, the local unit was trading at 89.61 US cents, up from 89.27 cents on Friday.

Late on Friday night, the currency dropped to 89.10 US cents, its weakest level since late August after Reserve Bank of Australia governor Glenn Stevens said the Australian dollar should be trading closer to 85 US cents rather than 95 US cents.

Brown Brothers Harriman global head of currency strategy, Marc Chandler, said the Australian dollar had a small rally as traders bought the currency on the belief it wouldn’t fall much lower.

“While we envision the 85.00 US cent area will be visited next year, the downside momentum eased ahead of the weekend,” he said.

However, Chandler doesn’t expect the Australian dollar to rise significantly above 90 US cents anytime soon.

“A move above 91.40 US cents, roughly the 20-day moving average, which had turned back three attempts to recovery since early November, is needed to begin repairing the technical damage,” he said.

There may be more negative comments on the “uncomfortably high” Australian dollar from the RBA when it releases the minutes of its December board meeting on Tuesday.

However, the main focus for markets this week will be the US Federal Reserve two-day policy meeting, which ends early on Thursday morning, Australian time.

The Fed is expected to make an announcement on winding back its $US85 billion-a-month bond-purchase program thanks to a run of good economic data in recent months.

AAP