The Australian dollar is higher as investor play down tensions over a possible US air or missile strike on Syria.

At 0700 AEST on Thursday, the local unit was trading at 89.42 US cents, up from 89.14 cents on Wednesday.

In offshore trade, the currency fell as low as 88.93 US cents, its weakest level August 5.

The US government is believed to be planning an attack as punishment for the Syrian government using chemical weapons on its own civilians.

In the last couple of days, the Australian dollar and Wall Street stocks have lost ground because of the tensions but BK Asset management managing director Kathy Lien said that has now changed.

“The possibility of a military strike on Syria has not diminished over the past 24 hours but you would not be able to tell that from today’s price action in the financial markets,” she said from New York.

“The financial media attributed the recovery in (US) stocks to the rise in shares of energy companies but we believe that some investors feel Syria poses only a short- and not long-term risk for the markets.”

Ms Lien said the fact that any military action against Syria would be an extended commitment was a relief to markets.

“The latest conversation in Washington suggest that the Obama Administration prefers a limited strike on military units that carried out the chemical attacks that would `deter and degrade’ the government’s ability to use chemical warfare again,” she said.

“The fear of backlash in the Middle East means that, most likely, the strikes won’t be aimed at ousting President Assad, which is key for investors because a swift limited attack could pave the way for a relief rally in currencies and equities.”

In Australia on Thursday, the Australian Bureau of Statistics will release business investment data for the June quarter.

AAP