The Aussie dollar rose to $1.0603, its highest since late March, before it met heavy resistance due to option-related selling. It last fetched $1.0576, having gained five cents in less than a month.
As expected, the Reserve Bank of Australia (RBA) kept rates at 3.5 percent at its monthly monetary policy meeting. It said it was too soon to gauge the full impact of past cuts while it noted early signs the stimulus was working.
The RBA cut rates by 75 basis points this year, mainly as insurance against the euro zone crisis and a slowdown in China, Australia's single biggest export market.
"The (RBA) statement accentuates a "firmly on hold stance" for a second month, against expectations for rates to be cut further," said Greg Gibbs, a strategist at Royal Bank of Scotland in Singapore.
"The RBA is likely to be moving into a period of stable rates for some time, barring any major global surprises."
Markets still imply a strong possibility of another easing in 2012 with interbank futures fully priced for a 25 basis-point cut in November. Then again, it was only a couple of weeks ago that a move was priced for September.
A key "hot button" issue could be the high Australian dollar, warned Craig James, CommSec's chief economist.
"If the Aussie was to keep rising, the Reserve Bank will be tempted to cut rates again."
"The central bank warned early in the year that currency strength could lead to a rate response, so the issue is clearly on the radar screen."
With rates on hold, Australian government bonds fell with the three-year contract 0.05 points lower at 97.220. The 10-year contract shed 0.045 points to 96.795.
A perkier Australian dollar took a toll on sterling, pushing it deeper south. The pound has come under heavy pressure since it became another new funding currency for carry trades.
It hit fresh five-month troughs against both Antipodean currencies, showing a loss of more than 10 percent since May.
It slipped to A$1.4703 with charts suggesting it was heading towards the 2012 low of A$1.4550. Against the kiwi, it skidded to NZ$1.8946, and looked poised to test the year's trough at NZ$1.8620.
NEW ZEALAND DOLLAR
The New Zealand dollar marked time around $0.8205, just shy of a three-month high hit overnight of $0.8224.
"Sentiment-wise, it appears to be a little stretched, a little bit overdone. Let's us see what comes out of Europe tonight," said Tim Kelleher, ASB Bank head of institutional FX sales.