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Aussie dollar climbs to 6-week high on EU optimism

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The Australian dollar rose to a six-week high on hopes that European leaders would soon announce plans to contain the region’s debt crisis and avert a recession.

German Chancellor Angela Merkel told German MPs overnight that the euro rescue fund, the European Financial Stability Facility (EFSF), is to be leveraged to one trillion euros ($A1.35 trillion) and that a Greek debt cut of up to 60 per cent was planned, German magazine Der Spiegel reported on Monday.

Westpac New Zealand senior market strategist Imre Speizer said the news gave the Australian dollar a lift during the offshore session.

“That’s well short of what the market needs but at least they have now agreed to leverage. It’s probably a step forward,” Mr Speizer said.

“That probably continued the optimism from the previous night which was again on some detail of what was likely to be emerging from the package.”

At 0700 AEDT on Tuesday, the Australian dollar was trading at 104.76 US cents, up from 104.16 cents on Monday.

Since 1700 AEDT on Monday, the currency has traded between 103.66 US cents and 105.01 US cents – its highest level since September 10.

A summit of European Union leaders on Sunday met to discuss plans to boost the firepower of the EFSF and backed plans to recapitalise banks which would be hit by a massive writedown of Greek debt.

They also agreed to explore a re-opening of the core European Union treaty to cover closer eurozone integration although non-euro states remain wary about moves that might leave them out.

Market watchers were now expecting more concrete details to be released on Wednesday or by the weekend, Mr Speizer said.

He said the domestic currency was given another boost overnight after Federal Reserve Bank of New York president William Dudley said that the central bank was open to another round of quantitative easing, or buying up of government bonds.

Strong Chinese manufacturing data released on Monday also improved risk sentiment, Mr Speizer said.

Traders were now awaiting local consumer price indices (CPI), due to be release by the Australian Bureau of Statistics (ABS) on Wednesday.

Headline September quarter CPI, a key inflation measure, is forecast to have risen by 0.6 per cent in the quarter and 3.5 per cent in the 12 months to the end of September, according to an AAP survey of 12 economists.

Mr Speizer said the Australian dollar may trade between 103.70 US cents and 105 US cents for the remainder of the local session on Tuesday.