At 12pm (AEDT), the Australian dollar was trading at $US0.6955/58, up from Friday's close of $US0.6888/92.
During the morning, the local currency moved between a low of $US0.6886 and a high of $US0.6980.
The dollar opened the week stronger at $US0.6971/78 at 7am (AEDT) but immediately moved lower, reaching its intraday low just before the local stock market opened at 10am (AEDT).
From $US0.6886, the unit climbed back above $US0.6900 and continued its upward trajectory when Australian Bureau of Statistics (ABS) figures showed the producer price index (PPI) at the final stage of production rose 2.0 per cent in the September quarter.
This was well above market expectations of a 1.0 per cent rise in the quarter.
Commonwealth Bank currency strategist Joseph Capurso said the PPI showed price pressures remained high.
"Looking at the detail, a lot of that was due to very strong commodity prices flowing through the system, as well as pretty strong growth in construction costs," Mr Capurso said.
"Markets had (been) particularly pessimistic about inflation in Australia and this serves to make them think again about inflation falling rapidly to the Reserve Bank's target band."
The Australian stock market opened about 2.2 per cent higher at 10am (AEDT) and remained well into positive territory at 12pm (AEDT), with the S&P/ASX200 index up 2.99 per cent.
"People are starting to worry less about the financial system," Mr Capurso.
The foreign exchange market continued to be volatile, but he expected the Australian dollar to remain well supported through the rest of the local session.
"We see upside risks to the Aussie this week," Mr Capurso said.
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