The Australian dollar gained more than 1 percent against the U.S. dollar, on track for its biggest daily rise in more than two weeks, after the Reserve Bank of Australia surprised many investors by refraining from cutting interest rates.

The Aussie rose to $0.7711 AUD=D4, its highest in a week, from around $0.76 before the decision and extending its recovery from a six-year trough of $0.7534 set on Thursday.

A fall in iron ore prices, Australia's single biggest export earner, and a currency that is still seen to be above fair value had left many convinced that the RBA would cut rates either this month or next. <AU/INT>

The RBA policy board noted that while the Aussie had fallen against a strong greenback, the decline against a basket of currencies had been less and a lower exchange rate was needed to help the economy.

"Should the Aussie appreciate notably today or over the next few days we would have to come to the conclusion that the market has misunderstood the RBA's intention (in refraining from cutting)," said Ulrich Leuchtmann, currency strategist at Commerzbank.

"In that case this would offer entry levels for shorts in the Australian dollar in the medium term."

The U.S. dollar, meanwhile, recovered almost all of its losses made after a weaker-than-expected U.S. jobs report, tailing higher Treasury yields US10YT=RR. The index stood at 97.07 .DXY, recovering from Monday's low of 96.329, with the dent from the soft payroll data on Friday proving to be temporary.

"The market is coming to think that you cannot downgrade your view on the U.S. jobs market just by looking at one soft number. Wages also weren't bad," said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.

New York Fed President William Dudley, a noted dove, said on Monday he viewed the jobs data "as reflecting temporary factors to a significant degree," namely the unusually harsh winter.

An industry report on the U.S. services sector also showed on Monday encouraging strength in exports and employment in March, holding out hope that the economy can quickly recover from the first-quarter slowdown.

Against the dollar, the euro stood 0.1 percent lower at $1.0935 EUR=. It has repeatedly failed to hold above $1.10 in the past few weeks, despite signs of a pick up in the euro zone economy, suggesting there is plenty of selling interest.

Against the yen, the dollar stood 0.2 percent higher at 119.75 JPY=, off a low of 118.71 set on Friday after the disappointing job growth figures sent dollar bulls packing.