The Australian dollar rebounded two US cents, after reaching a 10-month low yesterday, on renewed optimism that world finance leaders were close to a long-term solution to Europe's debt crisis.
At the close of the local session today, the Aussie was buying 98.84 US cents.
The currency reached 96.22 cents overnight, the lowest since December 2010.
National Australia Bank head of currency strategy John Kyriakopoulos said risk assets, like the Australian dollar, were well supported today on speculation that Greece's debt problems could be contained by authorities.
"No one is suggesting that a solution is around the corner but there's just a little bit more optimism," Mr Kyriakopoulos said.
Stocks surged "in response to reports that an official from Europe has said that a detailed plan to help restore conditions in Europe is in the works," Briefing.com analysts said.
Mr Kyriakopoulos said while the general mood was more positive on currency markets, traders were still concerned about Europe.
"The markets do remain very nervous and the main focus does remain on a Greek default and what that might mean for the banking sector in Europe."
He said yesterday's high of 98.66 US cents was a key level for the Australian dollar to reach today.
"We'd need to get through there to potentially spur some further buying - otherwise this rally could easily fizzle on the next bit of bad news."
Mr Kyriakopoulos said currency investors were awaiting a Greek parliamentary vote, due overnight, on a proposed tax law, which is key to convincing the European Union (EU) and International Monetary Fund (IMF) to release the next tranche of aid.
Since 0700 (AEST), the domestic currency traded between 97.77 US cents and 98.53 US cents.
Meanwhile, the Australian bond market was weaker at noon.
At 1200 (AEST, the December 10-year bond futures contract was trading at 95.855 (implying a yield of 4.145 per cent), down from 95.965 (4.035 per cent), on Monday.
The December three-year bond futures contract was at 96.480 (3.520 per cent) at midday, down from 96.580 (3.420 per cent).
