The Australian dollar closed just over one US cent higher as investors favoured risk assets and high-yielding currencies such as the local currency.
At 5pm AEDT, the Australian dollar was trading at 90.07 US cents, up 1.12 per cent from Friday's close of 89.03 cents.
From 7am AEDT, the local unit traded between 89.89 US cents and 90.23 cents.
The Australian dollar reached eight-year highs against the euro and came close to nudging a 25-year high against the pound.
CMC Markets foreign exchange dealer Tim Waterer said the Australian dollar was faring well against the euro and the pound as investors looked to high-yielding currencies.
"It does seem to be outperforming them based on the interest rate outlook here as opposed to the interest rate outlook in that particular region," he said.
"Once again the Aussie has reclaimed that 90 US cent level against the US dollar."
The Australian share market closed firmly higher, led by stronger financial and resources stocks following better than expected corporate earnings results and a rise in base metal prices.
The benchmark S&P/ASX200 index was up 82.4 points, or 1.78 per cent, at 4,717.5 points, while the broader All Ordinaries index rose 76.4 points, or 1.64 per cent, to 4,732.7 points.
Concerns about Greece defaulting on its sovereign debt has troubled financial markets over the past month and its possible flow through to other eurozone nations.
German newspaper Der Spiegel reported members of the eurozone were working on a proposal of between 20 billion and 25 billion euros to support Greece.
"The market seems to be absorbing the Greece situation relatively well," Mr Waterer said.
He said the Australian dollar was the strongest it had been against the euro and the pound since at least 2003.
At 5pm AEDT, the Australian dollar was trading at 82.58 Japanese yen, up from Friday's close of 81.76 yen, and at 66.08 euro cents, down from 66.09 euro cents.
The euro finished at 1.3630 US dollars, up from Friday's close of 1.3469 US dollars, and 124.97 Japanese yen, up from 123.72 yen.
The US dollar was at 91.70 Japanese yen, down from 91.85 yen.
Meanwhile, the Australian bond market closed slightly weaker on Monday after investors began favouring riskier assets such as shares.
At 4.30pm AEDT, the yield on the Commonwealth Government April 2020 bond was at 5.648 per cent, up from Friday's close of 5.626, while the yield on the May 2013 bond was at 4.948 per cent, up from 4.937 per cent.
On the Sydney Futures Exchange, the March 10-year bond futures contract was at 94.360, down from Friday's close of 94.380, while the March three-year bond futures contract was at 95.030, down from 95.050 previously.
Nomura Australia chief economist Stephen Roberts said there was not much movement on bond markets as investor support for risk assets began to improve during Friday's domestic session.
"It's been a story of risk assets picking up reasonably well through the course of the day," he said.
"So bond yields are just a touch higher."
Strengthening equity markets and a strong Australian dollar had led to debt futures contract prices falling, he said.
At 4.30pm AEDT, the 90-day bank bill rate was at 4.170 per cent, unchanged from Friday, while the 180-day bank bill rate was at 4.400 per cent, up from 4.380 on Friday's close.
At 4pm AEDT, the RBA's trade weighted index (TWI) was at 70.5 points, up from Friday's close of 69.9.
Meanwhile, the Australian share market closed firmly higher, led by financial and resources stocks following better than expected corporate earnings results and a rise in base metal prices.
The benchmark S&P/ASX200 index was up 82.4 points, or 1.78 per cent, at 4,717.5 points, while the broader All Ordinaries index rose 76.4 points, or 1.64 per cent, to 4,732.7 points.
On the Sydney Futures Exchange, the March share price index futures contract was 93 points higher at 4,701 points on volume of about 27,000 contracts.
IG Markets analyst Ben Potter said it was encouraging the bourse was holding above the psychologically important 4,700 point level.
CommSec market analyst Juliette Saly said a positive lead from Wall Street and higher commodity prices gave the local market a strong start.
Momentum gathered after several companies unveiled profit results that beat expectations and provided upbeat guidance, Ms Saly said.
She said investors were still digesting the news that Kerry Stokes-chaired Seven Network would diversify beyond the media and telecoms by merging with Caterpillar dealer WesTrac Holdings to create a new listed entity named Seven Group Holdings.
Seven reported a rise in first half net profit to $509.13 million. Its shares retreated 38 cents, or 5.16 per cent, to $6.98.
Among the major banks, National Australia Bank appreciated eight cents to $25.33, Westpac added 66 cents, or 2.59 per cent, to $26.12, Commonwealth Bank gained $1.32, or 2.5 per cent, to $54.13, and ANZ was up 58 cents, or 2.64 per cent, at $22.54.
Ms Saly said ANZ's first quarter trading update would be released on Friday, "so that's where the focus is going to be for the banks this week".
BHP Billiton was up $1.16, or 2.83 per cent, to $42.16.
Fellow mining giant Rio Tinto put on $1.51, or 2.13 per cent, to $72.51 after announcing its $1 billion majority-owned Mesa A/Warramboo mine in Western Australia began producing iron ore on Friday.
Fairfax Media on Monday said it expected further earnings growth in the second half of the 2009/10 financial year after returning to profitability in the first half as costs fell and advertising markets improved.
Fairfax shares lifted two cents to $1.805.
Forestry company Gunns said it planned to restructure its operations pending long-awaited funding for its controversial Bell Bay pulp mill in Tasmania.
Gunns posted a 98 per cent plunge in first half profit to $400,000, sending its shares 19.5 cents, or 22.16 per cent, lower to 68.5 cents.
Local oil stocks were stronger after crude oil for March delivery nudged $US80 a barrel on the New York Mercantile Exchange on Friday.
Woodside Petroleum was up 99 cents, or 2.27 per cent, at $44.60, Santos gained 19 cents to $13.60 and Oil Search was five cents firmer at $5.30.
Among gold stocks, Lihir advanced seven cents, or 2.57 per cent, to $2.79 and Newcrest jumped $1.46, or 4.59 per cent, to $33.26.
The price of gold in Sydney was $US1,124.555 per fine ounce, up $US20.335 on Friday's closing price of $1,104.22.
In the retail sector, Coles owner Wesfarmers was up $1.21, or 3.88 per cent, to $32.41 and Woolworths found 22 cents to $26.04.
The top-traded stock by volume was Verus Investments, with 225.7 million shares worth $11.48 million changing hands.
Its shares were down 0.3 cents, or 6.38 per cent, at 4.4 cents.
National turnover was 2.13 billion shares worth $5.16 billion, with 651 stocks up, 422 down and 347 unchanged.
