The Australian dollar has closed firmer, climbing one US cent as investors cheered news US legislators managed to hammer out a deal designed to avoid a debt default.
It rallied about three-tenths of a US cent after the 11th hour agreement between President Barack Obama and Republican leaders in the US Congress was announced at about 1040 AEST.
This proposed deal would lift the US government’s debt ceiling, allow the US Treasury to continue to borrow money, avert a shutdown of government services and stave off, for now, a potential downgrade by global ratings agencies.
The deal, which needed the tick of approval from both houses of Congress, would slice at least $US2.4 trillion ($A2.19 trillion) from federal spending over a decade.
Mr Obama said the deal was not one he preferred, but it was one which would “allow us to lift the cloud of debt and uncertainty” that had hung over the US in recent times.
At 1700 AEST on Monday, the Australian dollar was trading at 110.55 US cents, up 0.9 per cent from 109.54 US cents on Friday.
Since 0700 AEST, the local unit moved between 109.91 US cents and 110.61 cents, according to Iress data.
While the initial movement was positive, currency markets tracked sideways for most of the afternoon as investors awaited a response from the ratings agencies.
“Even though the market may be seeing this as a resolution, we need to see what the ratings agencies think,” TD Securities head of Asia-Pacific research Annette Beacher said from Singapore.
Standard & Poor’s, which has the US on negative credit watch, has said previously it wanted to see about $US4 trillion in budget savings for the US to keep its AAA credit rating.
S&P and Moody’s were yet to comment on the proposed deal.
Easy Forex senior dealer Francisco Solar said some softer commodities prices, which had risen amid uncertainty over the US debt default, during Asian trading on Monday also limited the Australian dollar’s move higher.
A better-than-expected Chinese manufacturing report published on Monday, as well as the, albeit unlikely, prospect of an interest rate rise at Tuesday’s Reserve Bank of Australia (RBA) board meeting, also supported the Australian dollar.
“It looks like it is going to be a bit of a risk event,” Mr Solar said of Tuesday’s interest rate decision.
“Having said that, in this type of environment with the US and the European issues, it would be hard pressed for the RBA to raise rates.”
Direction during Monday night’s (AEST) offshore session was expected to come from how US markets responded to the deal when they reopened after the weekend.
In terms of US economic data, the ISM manufacturing index for July was due for release.
The RBA’s trade weighted index was at 78.4, unchanged from Friday due to Monday’s bank holiday in NSW and ACT.
