The Australian dollar opened stronger as the US currency was undermined by comments from America's treasurer about slowing US growth.
At 0700 AEST, the Australian dollar was trading at $US0.9770/72, up from Monday's close of 0.9754/57.
Overnight, the Australian dollar moved between a high of $US0.9772 and a low of 0.9742.
The Australian dollar struggled against the US unit earlier in the offshore session, but recovered as traders revisited comments US Treasury Secretary Henry Paulson had made about a slowing US economy.
"We're going to be in a period of slow growth for a while," Mr Paulson told the CBS television network.
"I think it's going to be months that we're working our way through this period, clearly months."
Traders also turned against the US dollar later in the overnight session after the biggest US credit card firm, American Express, reported that its second-quarter earnings had declined by 38 per cent, to $US653 million ($A668.4 million), compared with the same period in 2007.
Bank of New Zealand currency strategist Danica Hampton said both pieces of news put the US dollar under pressure, which helped the boost Australian dollar.
"That left the market quite wary about the US financial sector," she said from Wellington.
"That saw the US dollar come under renewed selling pressure."
The Australian dollar hit its low levels late Monday night after a member of the Bank of England's monetary policy committee, David Blanchflower, said the UK was heading into recession.
"I think we are going into recession and we are probably in one right now", Professor Blanchflower told a UK newspaper.
This bleak commentary had helped the US dollar rally against the British pound sterling, and in turn the Australian dollar.
In the absence of major domestic economic data on Tuesday, Ms Hampton said the Australian dollar would struggle to break above $US0.9800.
"The market is coming to the idea that the next move is a Reserve Bank of Australia rate cut," she said.
"These expectations will encourage selling."
