The Australian dollar gained more than a US cent on reports that France and Germany were ready to sharply boost the eurozone's rescue fund amid a solid performance on regional equity markets.
RBC Capital Markets fixed income and currency strategist Michael Turner the Australian dollar rallied overnight but dropped slightly during the day and then regained ground later.
At 1700 AEDT the Australian dollar was trading at 103.13 US cents compared with 102.04 cents yesterday.
Since 1700 AEDT the Australian dollar traded between 102.32 US cents and a high at 103.36 US cents.
"There's just been no bad news, so the Aussie dollar tends to go higher in that environment," Mr Turner said.
The Australian dollar rose sharply in offshore trading overnight in line with a turnaround in stock prices in the US.
"As hard as people try, it's hard to keep the Aussie down," Mr Turner said.
Mr Turner said the main event influencing the local currency in the coming week would be the European leaders' summit beginning on October 23.
"There are bound to be more headlines on this bank recapitalisation plan, leaks on that front are probably going to determine how we finish the week."
Citing unnamed European Union diplomats, British newspaper The Guardian reported that the leaders of France and Germany, the eurozone's biggest economies, had agreed to boost the rescue fund to two trillion euros ($A2.72 trillion).
The suggestion of a solution to the sovereign debt crisis sparked a surge of interest in the Australian dollar.
At 1700 AEDT the Australian dollar was trading at 79.15 yen, up from 78.43 yen on Tuesday and at 74.68 euro cents up from 74.06 previously.
Meanwhile, the Australian bond market was slightly weaker as traders await the outcome of a European leaders' summit.
At 1630 AEDT on Wednesday, the December 10-year bond futures contract was trading at 95.495 (implying a yield of 4.505 per cent), down from 95.500 (4.500 per cent) on Tuesday.
The December three-year bond futures contract was at 96.160 (3.840 per cent), down from 96.170 (3.830 per cent).
UBS interest rate strategist Matthew Johnson said it has been a stable day for the Australian bond market and all markets were waiting for the outcome of a resolution to the eurozone crisis.
"My feeling is that the Europeans are under enormous pressure to fix this problem and will eventually do the right thing," he said.
"There a lot of people that need to be satisfied and I think media reports will probably be conflicting until the ministers meet and sign the actual piece of paper."
"The question to me, in my mind, is if the Aussie dollar can really break up convincingly through to highs of 103.70 US cents, it could rally much further to 105.00 US cents.
"Similarly for three-year bond futures prices, if they can break back down through 96.050, then I think we can head lower."
The RBA's trade weighted index was at 75.6 up from 74.9 on Tuesday.