The Australian dollar climbed back above 105 US cents despite weaker than expected expected domestic inflation figures.

Data released by the Australian Bureau of Statistics (ABS) on Wednesday showed the consumer price index (CPI) was flat in the December quarter, below economist's forecasts of an 0.2 per cent rise.

That brought the annual rate of inflation down to 3.1 per cent, from 3.5 per cent previously.

However, the underlying measures of inflation used by the Reserve Bank of Australia (RBA), the trimmed mean and weighted median, rose 0.6 and 0.5 per cent, respectively, for the quarter, roughly in line with market forecasts.

Easy Forex currency dealer Tony Darvall said the weaker headline figure saw the Australian dollar drop from 104.70 US cents to 104.50 US cents immediately after the data was released.

However, he said, the currency quickly rebounded as traders focused more on the underlying measures.

"There was an initial sell-off but the fact that the CPI was lower than expected allowed the short-sellers to quickly get squeezed up," he said.

"We were on a pretty bullish trend anyway so we've gone back above 105 US cents."

At 1200 AEDT on Wednesday, the local unit was at 105.09 US cents, up from 104.97 US cents on Tuesday afternoon.

Mr Darvall said he believed the Australian dollar was likely to push back toward the three-month high of 105.73 recorded early on Tuesday.

The inflation data also pushed local bond futures lower.

At 1200 AEDT on Wednesday, the March 10-year bond futures contract was trading at 95.970 (implying a yield of 4.030 per cent), down from 96.050 (3.950 per cent) on Tuesday.

The March three-year bond futures contract was at 96.640 (3.360 per cent), down from 96.750 (3.250 per cent).

AAP ews/cdh

SYDNEY, Jan 27 AAP - The Australian dollar has fallen slightly, but is still trading above 106 US cents on positive news from the US and Europe.

At 1200 AEDT on Friday, the local currency was trading at 106.03, down from 106.36 on Thursday afternoon.

ICAP senior economist Adam Carr said the Aussie dollar had unwound slightly after strong performances all week.

"There's still really good risk appetite," he said.

"Globally, we've seen a really good run in US and European equities, the situation in Europe seems to be stabilizing, and growth data out of the US has been quite strong, so that's giving real solidity to the Australian dollar.

"I think it's had such a hard run, so maybe people are taking some profits, but I don't think structurally anything has changed - it's more a case of momentum unwinding."

The dollar's strength had also lent weight to more mixed views on whether the Reserve Bank of Australia (RBA) will cut the official interest rate when it meets in February, said Mr Carr.

"I think there's a lot of discussion about the upcoming RBA meeting," he said.

"Odds of a cut have been reduced markedly, so the market is still pricing in a cut, but people are debating whether they'll cut and how much.

"The picture is changing quite dramatically, and that's been reflected in movements in the Aussie dollar."

The local currency was among various risk currencies trading well on news that the US Federal Reserve would keep interest rates low into 2014.

"Despite the fact that US economic data is improving, they have no intention of restoring stimulus," Mr Carr said.

"That does influence the value of the US dollar, and with our yield advantage and the fact that we're not going to print money makes the Aussie a better store of value.

"We're already hearing about Russian banks wanting to buy into Australian dollars."

From 0700 AEDT, the Australian dollar has traded between 106.01 US cents and 106.41 cents.

Meanwhile, Australian bond futures were higher at noon.

At 1200 AEDT on Friday, the March 10-year bond futures contract was trading at 96.095 (implying a yield of 3.905 per cent), up from 95.945 (4.055 per cent) on Wednesday.

The March three-year bond futures contract was at 96.710 (3.290 per cent), up from 96.620 (3.380 per cent).