At 12.00pm (AEST), the dollar was trading at $US0.8613/15, up from yesterday's close of $US0.8591/94.
The local unit opened the local session at $US0.8628, its highest since August 26, 2008.
Since 7.00am, the domestic currency moved between $US0.8613 and $US0.8661.
"Overnight, everything rallied,'' UBS economist Matthew Johnson said.
"But The Aussie(dollar) peaked out on consumer confidence data and collapsed on retail sales.''
During the domestic session the Westpac-Melbourne institute consumer sentiment index showed that confidence was at its highest level in more than two years.
The index grew by 5.9 index points in September to 119.3 points, an increase of 5.2 per cent.
It was the survey's highest result since July 2007.
The domestic unit hit its intra-day high in the minutes after the report was released at 11.00am. But it sank to $US0.8628 soon after the Australian Bureau of Statistics (ABS) released its retail trade data for July.
Domestic retail trade at current prices fell 1.0 per cent in the month to a seasonally adjusted $19.616 billion, from $19.821 billion in June, the ABS said.
The median market forecast was for retail sales to have risen by 0.5 per cent in July.
"People were feeling fairly confident but now they're not spending,'' Mr Johnson said.
"It makes it more likely that we're going to see the slow down in the economy that the Reserve Bank is looking for, which means there's less pressure on the bank to raise interest rates.''
The debt futures market has fully priced in a 25 basis point interest rate rise in November.
A quarter of a per cent rate hike would take the overnight cash rate to 3.25 per cent.
The Reserve Bank's (RBA) trade weighted index (TWI) was at 67.4, steady with yesterday's close.
Meanwhile, the Australian bond market was firmer. The yield on the Commonwealth Government March 2019 bond was at 5.386 per cent, down from yesterday's close of 5.429 per cent, while the yield on the April 2012 bond was at 4.763 per cent, down from 4.826 per cent previously.
On the Sydney Futures Exchange, the September 10-year bond futures contract price was 94.625, up from yesterday's close of 94.580, while the September three-year bond futures contract was at 95.146, up from 95.080.
Retail sales dip 0.1 percent in JulyRates buzz sends dollar above US84c
