Dollar higher this morning

THE Australian dollar is three quarters of a US cent higher as optimism grows that US politicians will work out a deal to avoid a debt default.

THE Australian dollar is three quarters of a US cent higher as optimism grows that US politicians will work out a deal to avoid a default on its debts.

At 7am (AEST) today, the Australian dollar was trading at 110.11 US cents, up from 109.54 cents on Friday.

With less than two days before the US hits the August 2 deadline to raise the $US14.3 trillion ($13.1 trillion) borrowing limit, President Barack Obama and leading lawmakers came closer to a deal to avoid a debt default.

Failure to arrive at an agreed outcome would cause a shutdown of some government services and potentially trigger a downgrade by global ratings agencies.

However, US Republican Senate Leader Mitch McConnell and Democratic Senate Leader Harry Reid both said they were hopeful that a deal would happen soon.

Westpac New Zealand senior market strategist Imre Speizer said the optimism in Washington helped improve market sentiment and helped push the Australian dollar higher.

"There is speculation there will be something announced over the next day or so on the debt ceiling," he said from Auckland.

"That's basically the story that is driving up risk sentiment, this morning, certainly for commodity currencies."

Mr Speizer said a resolution in the US would drive up equity markets and give the Australian dollar a boost.

President Obama is expected to make a statement on the negotiation late on Monday morning (AEST).

Tomorrow, the Reserve Bank of Australia (RBA) board will hold its monthly board meeting.

Mr Speizer said he expected the Australian dollar to trade as low as 109.65 US cents and potentially go higher than its post-float record of 110.81 cent during the local session today.