The S&P/ASX200 rose 35.1 points by midday, up 0.4 per cent, to 8,905.2, as the broader All Ordinaries gained 38.1 points, or 0.42 per cent, to 9,169.2.
The Australian dollar hit its highest daily close against the greenback in two years, buying 70.81 US cents, and mostly holding above 69 US cents for the past week.
The Aussie has been buoyed by strong commodity prices, a weaker US dollar and last week's Reserve Bank interest rate hike, with another expected by the end of the financial year.
Energy stocks outperformed the broader market, up 1.4 per cent as oil prices rose on rumours the US has ordered ships to avoid the Strait of Hormuz, despite constructive outward messaging on its recent talks with Iranian officials.
"Crude prices remain relatively volatile as geopolitical risks continue to simmer in the Middle East," Capital.com senior market analyst Kyle Rodda said.
"The markets will remain on edge as the situation continues to simmer away, with any strike likely to set off a spike in oil prices – as well as precious metals, which continue to recover after the collapse in prices of over a week ago, thanks also to the 'sell America' trade."
Elsewhere in energy, uranium stocks were hot property after taking a hit last week, with Paladin Energy shares up four per cent on Tuesday and Deep Yellow charging more than seven per cent higher.
Basic materials stocks gained one per cent, supporting the bourse despite some mixed performances across the sub-sectors.
Mega miners BHP and Rio Tinto each rose more than 1.2 per cent as iron ore futures reclaimed $US100 a tonne.
Gold miners were broadly higher despite the precious metal easing on Tuesday morning to trade hands at $US5,024 ($A7,097) an ounce.
The financials sector dragged on the bourse, fading 0.9 per cent as each of the big four banks crept lower ahead of Commonwealth Bank's earnings update on Wednesday.
Investment giant Macquarie Group pushed one per cent higher after reporting higher profits at its operations update.
Consumer discretionary stocks were up 0.8 per cent, while staples gained 0.4 per cent, as Westpac's consumer sentiment ticked lower in February on fears of the ultimately realised interest rate increase.
Dip buyers have been swooping on beaten-down health care and IT stocks, with each segment up more than 1.2 per cent on Tuesday.
Among the health care winners was blood plasma giant CSL, which jumped 1.5 per cent after striking a collaboration deal with Swiss biotechnology company Memo Therapeutics, Nine reported.
In company news, Droneshield named Michael Powell as its new chief operating officer, its shares jumped more than three per cent to $3.27.
Penfolds owner, Treasury Wine Estates, gained more than six per cent to $5.50 after settling a long-running dispute with a US distributor.
The Australian dollar was buying 70.81 US cents, up from 70.29 US cents on Monday at 5pm.
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