The Australian dollar jumped back above parity with the greenback as the US currency came under broad selling pressure and equity markets turned higher.
The dollar rose to as high as 101.12 US cents in recent trading, a three-week high. It has added more than 1 US cent since its local close of about 99.4 US cents.
Traders say the dollar broke above stops at parity and around US$1.0030. It was also buying almost 77.5 yen, 73.4 euro cents and 64.4 pence.
Earlier the Australian dollars cut losses as a sudden turnaround in Chinese stocks and commodity prices helped lift some of the gloom, after the passing of a crucial euro zone bailout fund stalled in Slovakia.
The Aussie, which fell as low as 98.65 US cents, rebounded to 99.40 US cents in late local trade, as China's Shanghai composite index rallied more than 2 per cent after erasing losses.
Traders said the move was driven by short-covering and talk of sovereign funds buying Chinese stocks. That helped restore risk appetite, which earlier had been sapped by disappointing earnings from Alcoa and news that Slovakia rejected a plan to expand the euro zone rescue fund.
The outgoing Slovak government still expects to be able to enact the measure as a caretaker administration by the end of this week with support from an opposition party.
"Chinese stocks turned around very sharply and copper as well, that saw the Aussie test the topside and take out some shorts," a trader said.
Still, analysts said the antipodean currency faces a tough road ahead with the Aussie battling stiff resistance at parity against the greenback.
Joseph Capurso, strategist at Commonwealth Bank, said the closely watched employment data due on Thursday will be key to the Aussie's near-term outlook.
Analysts polled by Reuters expect the economy to have generated 10,000 jobs in August, keeping the unemployment rate at 5.3 per cent.
"If we do get a below-consensus number, I can see the Aussie falling a cent pretty quickly," he added.
A weak number would likely add to speculation the Reserve Bank could cut interest rates in the next few.
Markets paid scant attention to second-tier data on Wednesday, which showed further signs of improvement in the housing market.
Australian debt edged higher, with three-year futures contract up 0.03 points to 96.310 and the 10-year up 0.015 points at 95.655.
Reuters