The US dollar also surged against the yen on news that the G7 had agreed on joint intervention to stem a rise in the yen after the Japanese earthquake.
Currency traders were heartened after a joint statement from G-7 officials saying that the United States, Britain, Canada and the European Central Bank would join with Japan in a concerted intervention in currency markets on Friday.
The Australian dollar rose to 98.72 US cents from 98.20 cents shortly after the news.
The US dollar jumped to 81.20 yen from 79.20 yen. It has recovered from a post-World War 2 record low of 76.25 yen on Thursday.
Easy Forex currency dealer Anthony Botros said the G-7 decision provided some much needed positive risk sentiment for the Australian dollar.
“Whether this is a knee-jerk reaction remains to be seen,” Mr Botros said.
“But the yen is definitely coming off its record highs that we saw yesterday.”
The market responds to UN Libya vote
Earlier in the day, the Security Council voted 10-0, with five abstentions including Russia and China, to authorise “all necessary measures” to protect civilians from attacks by Muammar Gaddafi’s forces.
The Australian dollar dropped to 97.79 US cents from 98.18 cents shortly after the news, as risk aversion set in, according to Easy Forex senior dealer Francisco Solar.
“It’s more pricing in of the market of what may occur going forward,” Mr Solar said.
The United States, France and Britain pushed for speedy approval because Gaddafi’s forces were advancing toward opposition-held Benghazi.
The Libyan leader vowed just hours before the vote to oust the rebels from their eastern stronghold.
The US said it was preparing for action.
“The fact is that the no-fly zone does involve taking out of anti-aircraft defence in Libya,” Mr Solar said.
“So there is some sort of military aspect to it which the market is always somewhat nervous about.”
Fears of a possible disruption to oil supplies in the Suez Canal saw Brent crude for May climbing to an intraday high of $US116.50, up $US1.60, Reuters reported.
Mr Solar said the market was clearly worried and was waiting for further clarification on the implications of the UN vote.
“The more we hear about this, you’ll probably see more of a pricing in of risk in the oil price and in the Aussie.”