Australian dollar higher after US debt ceiling deal

THE Australian dollar was higher at noon after a deal was reached to raise the US government's borrowing limit.

THE Australian dollar was higher at noon after a deal was reached to raise the US government's borrowing limit.

At 12pm (AEST) today, the Australian dollar was trading at 110.52 US cents, up from 109.54 cents on Friday.

On Monday morning (AEST) political leaders in Washington agreed to raise the US government debt ceiling in two stages by at least $US2.2 trillion from the current $14.3 trillion ($13.1 trillion) level.

The measure, which is yet to go through both houses of Congress, also aims to cut $1 trillion  from the US budget.

Failure to arrive at an agreed outcome by midnight (US time) on August 2 would have caused a shutdown of some government services and potentially trigger a downgrade by global ratings agencies.

The Australian dollar was trading at 110.35 US cents before the announcement of the deal and by 10.40am (AEST), it had risen to 110.51 cents.

The Australian share market rose two per cent on the news.

CMC Markets foreign exchange dealer Tim Waterer said the US dollar rose against the yen and the Swiss franc after the debt ceiling announcement.

"The Australian dollar managed to hold its ground, and hit 110.50 US cents, shortly thereafter.

"So the news from Washington, from a risk trade point of view, does suit the Australian dollar.

"We have the situation where once the bill gets passed, then that could give the green light to the risk trade again and that could see the Aussie dollar hit the 111.00 US cent mark in coming days.

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

Mr Waterer said the market will be reading the short statement that comes with the RBA decision for signs of a rate rise in the coming months.

"That could see further upside to the Australian dollar," he said.