The Australian dollar climbed from multi-week lows on Thursday aided by a bounce in stock markets and demand from Japanese investors.
The Australian dollar withstood mixed business investment data to rise a cent to $US0.8877, from a one-month low of $0.8770 hit on Wednesday.
"It has all been led by the Japanese - Japanese trust banks and retail investors," said a trader at a US bank.
"But there is still a lot of good selling interest for the Aussie dollar between $US0.8900 to $US0.8950 from US proprietary speculators and hedge funds."
Other traders said mutual funds were buying the Aussie too. Few buy or sell stop-loss orders were in sight for the Aussie against the US dollar for now. Against the yen, many sell orders were seen below 73.50.
By early evening, the Aussie dollar had risen to 75.18 yen, from Wednesday's low of 74.31 hit offshore.
Asian equities mostly edged up on Thursday as investors consolidated recent losses. But they were still in the red for the week, suggesting the mood is far from buoyant.
The higher-yielding Aussie is a play on commodities and more volatile compared to other currencies.
So it is seen as a riskier investments and tends to shadow stocks.
For instance, the Aussie's 60-day correlation with the MSCI ex-Japan stocks and S&P futures were very strong above 0.9.
So entwined is the Aussie dollar's performance to stocks that Shane Oliver, head of investment strategy at AMP, said the currency could struggle in September as that is typically the worse month of the year for US and Australian equities.
Australian bond futures eased a touch from multi-month highs. Three-year futures slid 0.02 points to 95.27 after climbing as far as a 13-month high of 95.71.
Ten-year futures were off 0.01 point at 95.215 after hitting a 15-month peak of 95.29.
Reuters