At 0700 AEDT on Friday, the local unit was trading at 96.28 US cents – its highest point since June 13 – up from 95.52 cents on Thursday.
The greenback came under pressure after US politicians passed a last-minute budget bill to temporarily raise the US debt ceiling and reopen the government.
The sell-off hastened on reports that Chinese ratings agency Dagong downgraded US debt from A to A-, BK Asset Management managing director Boris Schlossberg said.
“The move was no doubt self-serving and part of a broader Chinese campaign to `de-Americanise’ global trade as China attempts to ascend to reserve currency status, but the move nevertheless provided the fuel for further US dollar liquidation,” Mr Schlossberg said.
“The markets are uncertain about the long-term impact of the government shutdown on the US economy.
“At the very least, the shutdown saga has insured that the US Federal Reserve is likely to maintain its quantitative easing policy into the year end and perhaps even all the way to March of 2014 before US monetary officials feel comfortable enough to curtail stimulus.
“Such a scenario is likely to keep the US dollar under pressure for the time being, especially if US economic data shows significant weakness as a result of the political machinations of the past two weeks.”