The Australian dollar made its biggest one-day gain in 10 months today as a US government bail out of America's biggest mortgage finance providers boosted demand for riskier currencies.
At 1700 AEST, the Australian dollar was trading at $US0.8302/05, up sharply from Friday's close of $US0.8175/79.
This was the Australian dollar's biggest single-session jump since November 14, when the currency surged by $US1.55 to finish at $US0.9035.
The local unit's gains were less than the $US1.78 slide suffered on Friday, based on global growth slowdown fears.
During the day, the local currency traded between a morning low of $US0.8256 and a late afternoon high of $US0.8352.
High-yielding currencies gained a boost today after US Treasury Secretary Henry Paulson announced on Friday night a $US1 billion stock buyout of American mortgage finance providers Fannie Mae and Freddie Mac.
The US Federal Housing Financing Agency will place the mortgage companies under a conservatorship, where their stocks keep trading.
Fannie Mae and Freddie Mac own or guarantee $US5.2 trillion ($A6.24 trillion) in US home loans, or half the American mortgage market.
Lehman Brothers chief economist Stephen Roberts said news of the US rescue package helped the Australian dollar benefit from stronger risk appetite, and finish firmer against the low-yielding Japanese yen.
"The package helped investors back into riskier trade ... what we've seen is a move towards risky currencies," he said.
"Equity markets have responded strongly around the region."
Mr Paulson said the bailout ensured financial markets were covered from further damage from mortgage defaults and aftershocks in the American economy.
The Australian dollar stayed below its opening level of $US0.8306/11 for most of the morning as Reserve Bank of Australia (RBA) governor Glenn Stevens addressed a parliamentary committee in Melbourne.
Mr Stevens told the House of Representatives Economics Committee that inflation, now at 4.3 per cent, was likely to peak at five per cent in the September and December quarters.
"Rather than trying to achieve that larger fall in inflation by pushing it down more quickly, the board's strategy is to seek a gradual fall, but over a longer period," he said.
Mr Roberts said the Australian dollar was likely to peak at $US0.8400 tonight, as traders took the view that a government bailout of the US mortgage giants would not kickstart the troubled US housing market.
