The Australian dollar hit a two-year high on the euro on Wednesday after breaking key chart levels, and as robust domestic data supported optimism on the economy for this year.
The dollar closed locally at the day's high of 0.6368 euros, from 0.6330 seen here late Tuesday.
Traders and analysts said the Aussie has gained upward momentum after it managed to jump above key levels between 0.6260 and 0.6270 euros on December 31.
"The euro has taken out key technical support levels and that is fuelling downside momentum for it," said Sue Trinh, an analyst at RBC Capital.
The euro's struggle to jump above $US1.5000 against the US dollar and $US1.4450 in the near term has also encouraged investors to bet against the currency, some analysts said.
Lingering concerns over soverign rating downgrades in Spain and Greece and the latest troubles in Iceland also do not bode well for the euro.
Jonathan Cavenagh, an analyst at Westpac, predicts the Aussie could hit 0.6500 euros in the next one month.
Against sterling, the Aussie is at its highest in over two months at 0.5716 pounds, up from Tuesday's 0.5666.
It was flat against the US dollar at $US0.9144 in quiet trade.
Charts show three-month Aussie volatility is at a three-week low, reflecting recent aimless range-trading.
Australian bond futures were weaker, nudged lower by a local economic report that pointed to a booming construction sector which will increasingly add to economic growth.
Investors are still undecided on whether the Reserve Bank of Australia will raise interest rates by 25 basis points at the next policy meeting on February 2, with interbank futures showing a 50-50 chance.
Yet they still have almost 125 basis points of tightening priced in for the year, which would take Australian rates even further above any other developed nation.
Three-year bond futures fell 0.03 points to 94.86, and the ten-year contract lost 0.04 points to 94.23.
Data showed approvals to build new homes in Australia jumped a surprisingly strong 5.9 per cent in November. Approvals for non-residential housing leapt 53 per cent thanks in part to generous government spending on hospitals.
"The strength of non-residential approvals points to public investment contributing solidly to building activity in the year ahead," said Spiros Papadopoulos at NAB Capital.
Reuters