The Australian currency held firm on Friday, buoyed by surprisingly strong Chinese manufacturing data and intense speculation the Reserve Bank of Australia will lift interest rates next week.

At 5pm AEST, the local unit was trading at $US0.9673, below Thursday's finish of $US0.9682, but up from an early $US0.9637 low and near a two-year high of $US0.9734 struck overnight. It has gained 1 per cent for the week after rising over 8 per cent for all of September.

The Aussie also hit its highest level on sterling since 1985 around 0.6170 pounds.

The domestic currency was well supported by surprisingly strong data out of China, indicating a rise in the official purchasing managers' index to 53.8 in September from 51.7 in August.

China is a major buyer of Australian commodities, and a major determinant of prices, so signs of a revival in production as considered positive for exports and domestic growth.

A soft landing for China would also brighten the outlook for growth globally and improve the appetite for leveraged trades in commodities and higher yielding currencies.

"The China story is an Australian dollar story," Easy Forex currency dealer Anthony Darvall said, referring to the insatiable demand for Australian resources by China's manufacturing sector.

Mr Darvall said US manufacturing data due overnight could give the domestic currency another boost.

"If the data is strong or near expectations, combined with the Chinese data, it is very likely that the Aussie will test 97 cents again overnight."

"If it comes in as well as the Chinese data, then commodities will rally and the Aussie will rally on the global recovery road story."

The upbeat data added to reasons the RBA could resume lifting interest rates at its policy meeting next week after four-month pause.

"The RBA is looking out to 2011 and 2012 and sees a mining investment boom here fuelled by Chinese demand," said Rob Henderson, chief markets economist at National Australia Bank.

"That boom is coming when the economy is already near full capacity, so rates have to rise to head off inflation."

Mr Henderson and most of his peers expect the cash rate to increase by 25 basis points to 4.75 per cent on Tuesday. A Reuters poll of 23 economists found 18 expect a hike while only five predict no change.

With Reuters