The local dollar approached an almost three-month high against the yen after Treasurer Wayne Swan announced tax exemptions on debt issued by state governments, a waver that already applies to corporate and national bonds. Demand for the currency was also supported as the price of gold and copper rose.
The Australian dollar climbed to 96.54 U.S. cents, the most since February 1983, before trading little changed at 96.36 cents at 5:01 p.m. in Sydney from 96.35 cents late in Asia yesterday. The currency headed toward parity, which was last reached in July 1982.
The Aussie has risen 9.7 percent this year, the second- biggest gainer among the 16 most-traded currencies against the U.S. dollar after the Swiss franc.
Australia's dollar has attracted overseas investors as the central bank increased interest rates twice this year to a 12- year high of 7.25 percent. The Reserve Bank of Australia said this week that policy makers considered raising borrowing costs earlier this month.
The country's two-year bonds offer a yield advantage of 4.31 percentage points more than similar-maturity U.S. Treasuries, the widest in a month.
Australia's currency was also boosted as the price of gold, the nation's third-most valuable export, rose to the highest in a month. The terms-of-trade, a measure of export income, are forecast by the central bank to increase 20 percent this year.
The so-called real effective exchange rate is used to assess a country's international competitiveness in terms of its foreign exchange rate.
Australian government bonds fell. The yield on the 10-year note rose 12 basis points, or 0.12 percentage point, to 6.45 percent. The price of the 5 1/4 percent bond maturing in March 2019 declined 0.888, or A$8.88 per A$1,000 face amount, to 90.765. Yields move inversely to prices.