The Australian dollar is half a US cent higher on speculation European leaders and the European Central Bank (ECB) will take action to protect the euro from the region's debt crisis.
At 0700 AEST on Monday, the local unit was trading at 104.74 US cents, up from 104.26 cents on Friday.
Early on Monday morning, the Australian dollar peaked at 104.97 US cents, its highest level in four months.
In a phone call over the weekend, German Chancellor Angela Merkel and Italian Prime Minister Mario Monti "agreed that Germany and Italy will do everything to protect the eurozone," a statement said.
The pledges of support by eurozone leaders, as well as earlier comments from ECB president Mario Draghi have spawned speculation in financial markets that there will be co-ordinated action to bring down the borrowing costs of Italy and Spain, currently seen as unsustainable.
Bank of New Zealand currency strategist Mike Jones said the encouraging comments improved market sentiment.
"The nature of ECB support for European peripheral markets continue to gather steam," he said.
"I think investors are more or less convinced that help from the ECB is on the way. That was underpinned by a rather sharp rally in equity markets and commodity prices.
"Consistent with that environment, the Aussie dollar climbed as well."
Mr Jones said the main focus on the markets this week would be the meetings of the ECB on Friday and the Federal Open Markets Committee (FOMC) of the US Federal Reserve on Thursday.
The ECB meeting is expected to focus on extending a program of buying bonds from struggling euro zone nations.
In the FOMC meeting, the market will be watching for signs the Fed is prepared to embark on another round of economic stimulus.
Mr Jones said he expected the Australian dollar to trade in a range between 104.60 US cents and 105.00 cents on Monday.