The Australian dollar was steady around 92 US cents this morning, as expectations of an imminent rise in interest rates offset the fresh wave of risk aversion gripping financial markets.

High gold prices also helped sustain the Aussie dollar at $US0.9205/09, barely changed from late here on Monday, but well short of last week's 23-year peak of $US0.9344.

The Reserve Bank of Australia (RBA) holds its November board meeting today and is widely expected to raise its cash rate to an 11-year peak of 6.75 percent when it announces its decision on Wednesday.

The move comes bang in the middle of an election campaign and just a week after the US Federal Reserve cut interest rates.

Recent domestic economic data has been on the strong side and analysts expect a hawkish statement from the RBA on Wednesday -- pointing to a further rate hike in coming months.

Interest rate futures have priced in more than a 90 percent probability of a move on Wednesday and a real chance of a further rise to 7 percent by March.

That contrasts with the United States, where more monetary easing is being factored in. As a result yield spreads have widened sharply in favour of the local dollar, with two-year yields a hefty 317 basis points over those in the US.

Expectations of higher domestic interest rates saw the Aussie hold ground against the Japanese yen even as fresh credit jitters prompted investors to unwind carry trade positions. The Aussie/yen pair was at 105.32/42 yen, barely changed from Monday's 105.42/52 yen.

Stocks on Wall Street fell amid deepening worries that the US subprime crisis would create fresh turmoil in credit markets and weigh on the economy.

Yields at the shorter end crept yet higher on Tuesday ahead of a widely expected rate hike and amid fresh strains in global money markets. The three-year futures eased 0.01 points to 93.23 while the 10-year contract was steady at 93.735.

Reuters