The battered Australian dollar got a lift on Monday from the US government's decision to bail out bank Citigroup, a move that lent some support to appetite for riskier assets and high-yielding currencies.
US stock futures pointed to a firm start for Wall Street, helping the Aussie recover from the day's low against the Japanese yen as investors paused from unwinding leveraged carry trades.
The US Treasury Department said it will invest $20 billion in Citigroup Inc and the Federal Deposit Insurance Corp. will provide protection against losses in a pool of about $306-billion worth of loans and securities.
"The fact that they have come out with a very large and comprehensive support package for Citibank is welcome," said Tony Morriss, senior currency strategist at ANZ.
"Some of the uncertainty that weighed on markets earlier in the day has been lifted. This should help stock markets and the Aussie, going into the European session, but given Japan is on holiday, the reaction has been muted."
By 4:25 pm (0525 GMT), the Aussie had risen to $0.6301 against the US dollar, from $0.6191 late in Sydney on Friday when it struck a one-month low of $0.6075.
It had fallen to as low as $0.6233 amid uncertainty ahead of the Citibank rescue.
The Aussie inched up against the yen, rising to 60.16 yen from a one-month low of 56.93 yen struck on Friday as aggressive de-leveraging took a breather.
Despite the gains, investor sentiment remained fragile amid deepening worries over the world economy and much talk of more stimulus packages from major economies.
US President-elect Barack Obama said on Saturday that he was crafting an aggressive two-year stimulus plan to revive the troubled economy.
The Aussie had tumbled late last week, prompting the Reserve Bank of Australia (RBA) to step in and buy the currency around $0.6080. The central bank spent a record A$3.15 billion ($2 billion) in October alone to support the Aussie.
Currency speculators trimmed short positions in the Aussie in the past week. Net short positions fell to 5,790 contracts in the week to Nov. 18 from 8,604 contracts in the previous week .
Aussie bonds were supported by safe-haven bids and expectations of further rate cuts by the central bank.
Three-year Australian bond futures were flat at 96.47, while the 10-year contract was 0.035 higher at 95.405.
Bill futures eased, but investors are still betting the RBA will have to cut rates even more aggressively. A full percentage point cut is now expected in December, if not sooner, with further cuts to 3.25 percent seen by March.