Australian dollar higher on France, Germany debt deal

THE Australian dollar gained slightly after it emerged that France and Germany may have reached agreement over how to resolve the Greek debt crisis, ahead of a crucial 17-country summit.

THE Australian dollar gained slightly after it emerged that France and Germany may have reached agreement over how to resolve the Greek debt crisis, ahead of a crucial 17-country summit.

At noon (AEST) today,  the Australian dollar was trading at 107.48 US cents, up from 107.37 US cents at close on Wednesday.

Since 7am (AEST), the local unit traded between 107.35 US cents and 107.74 US cents.

RBC Capital Markets senior economist Su-Lin Ong said the Australian dollar was buoyed by news around 8:30 (AEST) that the eurozone's two major players, France and Germany, may have reached agreement on how to resolve the Greek debt crisis.

Media outlets are reporting that German Chancellor Angela Merkel has reached a last-minute compromise with France over a fresh bail-out for Greece, ahead of crucial summit in Brussels tonight.

"That drove the euro a lot higher this morning, with a risk-on type environment that effectively drove the Aussie dollar higher,'' Ms Ong said.

The Australian dollar offers higher yields than other currencies while being regarded as more risky, so tends to rise when there is good financial news and declines when news is bad.

European Union leaders are expected to craft a second rescue package of up to 120 billion euros ($159.25 billion) for Greece when they gather for a special summit in Brussels on Thursday night.

"It does look like France and Germany have agreed to some kind of proposition in terms of what to do with the second Greek bail-out package,'' Ms Ong said.

"That saw the euro jump quite significantly and pretty much dragged the Aussie... all the way up to 107.70.''

Ms Ong said the market would wait to see more details come out of the summit in tonight's offshore session.
Meanwhile, bonds declined as risk sentiment improved.

At noon, the September 10-year bond futures contract was trading at 95.020 (implying a yield of 4.980 per cent), down from 95.035 (4.965 per cent) on Wednesday.

The September three-year bond futures contract was at 95.570 (4.43 per cent), down from 95.590 (4.410 per cent).