The Australian rose to a 29-year high against the US dollar on Wednesday in Asian trading, as risk appetite strengthened for the commodities-backed currency.

The Aussie hit a high of $1.0318 to reach the highest level since it was floated in 1983.

Analysts said that the factors driving the demand for Aussie are higher interest rates and low inflation compared with other developed nations.

That is the case of traders buying the high-yielding currencies and being short on the low-yielding currencies to earn the interest rate differential effectively, AFP reported, quoting Tim Waterer, foreign exchange dealer at CMC Markets.

The official cash rate in Australia is currently 4.75 percent, making it one of the most attractive yields among the developed nations.

Also, the currency was supported by continuing talks on M&A flows, strong demand for higher-yielding currencies and high commodity prices. The country has a steady demand for its commodities from growing economies like China and India.

The Aussie also climbed to a 10-month high of 85.69 yen against the Japanese yen, rebounding 14 percent from a low of 75.05 two weeks ago.

Japanese investors are eyeing (better) yields offshore, whether it be in Australia or America or elsewhere, and that is what's pushing the yen down on a broad front, Reuters reported, quoting Joseph Capurso, strategist at Commonwealth Bank.