The Australian dollar pushed to its highest level in almost three weeks, rising above 108 US cents, following data showing the retail sector having recovered from its pre-Christmas blues.
Economists said the Australian Bureau of Statistics (ABS) figures reduced the chance of a cut to official interest rates next month.
The ABS said retail sales grew 0.3 per cent in January following an 0.1 per cent jump in December.
CMC Markets foreign exchange strategist Tim Waterer said the ABS figures help pushed the local currency higher.
"The result itself wasn't particularly strong but there was almost a sense of relief that we didn't get a negative figure like we did last time," he said.
"That saw the currency regain that 108 US cent level which it held for most of the afternoon."
Mr Waterer said traders would be closely watching US Federal Reserve Chairman Ben Bernanke's address to Congress overnight.
"I think a lot of what happens with the Aussie dollar overnight will depend on how US equities fare in relation to that testimony and how upbeat or otherwise he sounds."
At 1700 AEDT the Australian dollar was trading at 108.04 US cents, up from 107.83 cents yesterday.
The currency was at 86.80 Japanese yen, the same level as yesterday afternoon, and at 80.21 euro cents, down marginally from 80.20 euro cents.
Since 0700 the currency has traded between 107.64 US cents and 108.23 US cents, its highest level since February 9.
Meanwhile, Australian bond futures prices firmed slightly in quiet trade ahead of the launch of the European Central Bank's second refinancing operation for that region's banks.
The previous long-term refinancing operation (LTRO) in December resulted in 489 million euros ($A611 million) in cheap finance for European banks, but it was unclear how much would be issued on Wednesday.
ANZ senior economist Shane Lee said it was hard to say what the bond market's reaction to the LTRO would be.
"The facility is doing a good job, so you'd be very worried if there was a very small take-up," Mr Lee said.
"It's something that's set up, it's reasonably infinite in size, and it's there to help the market out.
"I think the expectations are between 300 million euros ($A376 million) and 600 million euros ($A752 million).
Tomorrow, the Australian Bureau of Statistics (ABS) will release private new capital expenditure and expected expenditure (capex) data for the December quarter.
"I think if you don't get a reasonable plant and equipment number out of that, then the market will be pretty disappointed," Mr Lee said.
At 1630 AEDT, the March 10-year bond futures contract was trading at 95.970 (implying a yield of 4.030 per cent), slightly up from 95.965 (4.035 per cent).
The March three-year bond futures contract was steady at 96.390 (3.610 per cent)
The Reserve Bank of Australia's trade weighted index rose to 79.2, from 79.1 yesterday.
