UPDATE: THE dollar has retreated after pushing above 105 US cents overnight but is continuing to trade strongly.At noon, the currency was trading at 104.90 US cents, up from 104.73 cents yesterday.
It reached a fresh two-week high of 105.25 US cents early on Thursday morning as global share markets soared on news the US Congress passed legislation preventing automatic tax hikes and spending cuts that threatened to send America into recession.
Westpac chief currency strategist Robert Rennie said the Australian dollar was performing well but had been unable to extend its rally.
While markets had welcomed the deal between US Republicans and Democrats that allowed the legislation to pass, Mr Rennie he said concerns about upcoming battles in Congress over the debt ceiling and the budget deficit were weighing on risk assets like the Australian dollar.
"I think the positivity surrounding the deal has been somewhat reduced by the fact we still have the debt ceiling issues to go," Mr Rennie said.
"There's just this nagging feeling about what might happen, it's really only about six weeks away and there is a lot that could happen."
Congress will need to vote to lift the US debt ceiling within about two months or risk causing the government to default on its bills and financial obligations.
Mr Rennie said the next major driver for the Australian dollar would be the release of US employment figures for December, due out tomorrow night (Australian time).
Meanwhile Australian bond futures prices were mixed at noon.
At noon, the March 10-year bond futures contract was trading at 96.620 (implying a yield of 3.380 per cent), up slightly from 96.615 (3.385 per cent) yesterday.
The March three-year bond futures contract was at 97.180 (2.820 per cent), down from 97.200 (2.800 per cent) previously.