The Australian dollar has opened higher after news the US government would rescue troubled US bank Citigroup and a massive UK stimulus package lifted investor appetite for riskier assets.
At 0700 AEDT, the Australian dollar was trading at $US0.6477/81, up 1.9 US cents, or 3.1 per cent from Monday's close of $US0.6283/91.
During the overnight session, the local unit moved between a low of $US0.6255 and a high of $US0.6505.
US equity markets opened the week sharply higher after the US government said on Monday (AEDT) it would guarantee $US306 billion ($A482.31 billion) of Citigroup assets and the US Treasury said it would inject $US20 billion ($A31.52 billion) of capital into the bank.
Heading into the last hour of trade in New York, Citigroup shares had climbed 55 per cent, while the broader market had risen four per cent.
Also greeted positively were the announcement of US president-elect Barack Obama's economic team and plans from US lawmakers for a second economic stimulus package, worth about $US700 billion ($A1.1 trillion).
On the other side of the Atlantic, UK prime minister Gordon Brown unveiled a STG25.6 billion ($A60.22 billion) stimulus package - equivalent to about one per cent of the country's gross domestic product - in a bid to drag the economy out of its first recession since 1991.
European stock markets all recorded huge gains, led by bourses in Germany and France which rose more than ten per cent.
Bank of New Zealand currency strategist Danica Hampton said the announcements led to a rebound in investor confidence and supported a stronger Australian dollar.
"We have had an encouraging sign from all these government measures and that's seen equity markets rebound and that's primarily what's seen the Australian dollar surge higher overnight," Ms Hampton said from Wellington.
But in more sobering economic news, Ms Hampton said a weak German business confidence survey - which dropped to a 15-year low - and more disappointing US housing data highlighted the continued downturn in the global economy.
"I'm a little bit sceptical about how long this bounce in confidence will last," Ms Hampton said.
"I wouldn't be surprised if we start to see equities falter in the next day or two."
There are no local economic data due out on Tuesday.
The Japanese market reopens after a national holiday on Monday.
