The Australian dollar is around three quarters of a US cent higher after a successful bond auction eased fears about the rising cost of debt for the Spanish government.

At 1700 AEST on Wednesday, the local unit was trading at 103.85 US cents, up from 103.14 cents on Tuesday.

Since 0700 AEST on Wednesday, the Australian dollar traded between 103.78 US cents and 104.17 cents.

On Tuesday night Australian time, the Spanish government raised more than 3.18 billion euros ($A4.05 billion) in an auction of short term government bonds.

The successful bond auction was seen as a significant test of market confidence in Spain, after the costs of government debt via bond yields, rose sharply in recent months, raising fears of the country’s ability to meet its debt commitments.

CMC Markets foreign exchange dealer Tim Waterer said the auction improved market sentiment and sent equities and risk currencies like the Australian dollar higher.

“The pendulum of market sentiment continues to be swayed by Spanish bond prices, with daily investment flows either towards or away from riskier assets very much at the mercy of closely watched yield variances in Europe,” Mr Waterer said.

“Spanish yields are the hot topic in the market, with the price activity having a direct correlation with the comfort level of traders with regards to taking on assets like shares and commodities in their portfolios.”

Mr Waterer said Spanish bond yields will continue to be a major factor for markets in the coming days.

The Spanish government will auction up to 2.5 billion ($A3.17 billion) in three- and 10-year bonds on Thursday night.

The RBA’s trade weighted index rose to 77.0 on Wednesday, from 76.4 on Tuesday.