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Aussie dollar strengthens on headway on eurozone debt

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The Australian dollar is almost one US cent higher at noon as market sentiment remains upbeat over the European government debt crisis.

The local unit held on to its overnight on Wednesday gains throughout the morning after Asian equity markets performed well during the morning.

By 1200 AEDT on Thursday, the market was trading at 96.43 US cents, up from 95.50 on Wednesday. Since 0700 AEDT on Thursday, the local unit has traded between 95.49 US cents and 96.44 cents.

German Chancellor Angela Merkel’s comments on Wednesday night backed a plan to co-ordinate the recapitalisations of financial institutions.

The news of the planned recapitalisations gave markets a reason to be optimistic because it is being interpreted to mean European leaders are starting to react to the debt crisis with some urgency.

CMC Markets foreign exchange dealer Tim Waterer said the market was feeling much better about itself now uncertainty in Europe had been curtailed.

“The market seems to be quite well pleased with plans out of the EU. That’s eased some concern,” Mr Waterer said. “A much stronger performance on Asian equity markets translates into more demand.”

The Australian dollar dipped 0.2 of a US cent midmorning, which, Mr Waterer said, was caused by the news of the death of former Apple CEO Steve Jobs.

The news also prompted a blip in US futures markets.

Mr Waterer said all eyes now would be on the European Central Bank’s interest rate decision on Thursday night, Australian time, but the market was not expecting a change.

“Any good news will be welcome,” he said.

He said a strong night of trading in US equities could push the Australian dollar up to 97.50 US cents.

“We’ve had two strong nights in the US. If we saw another advance in the S&P 500, that would lead to some selling of the US dollar.”

Meanwhile, the Australian bond market was weaker at noon.

At 1200 AEDT on Thursday, the December 10-year bond futures contract was trading at 95.855 (implying a yield of 4.145 per cent), down from 95.910 (4.09 per cent) on Wednesday.

The December three-year bond futures contract was at 96.510 (3.490 per cent), down from 96.560 (3.440 per cent.)