Australian dollar in for a spectacular month

THE Australian dollar is heading for its biggest one-month gain in almost 40 years as the market remains buoyant about the resolution to the eurozone debt crisis.

THE Australian dollar is heading for its biggest one-month gain in almost 40 years as the market remains buoyant about the resolution to the eurozone debt crisis.

So far in October 2011 the local unit has risen 10.7 per cent, the largest gain since February 1973 when it went up 10.9 per cent.

The Australian dollar has strengthened since the middle of last week on expectations that European leaders would find a solution to the region's government debt crisis.

On Thursday, Australian time, a deal was reached to convince banks to take a 50-per cent writedown on Greek debt and to increase the regions's bailout fund to one trillion euros ($A1.33 trillion).

At 1200 AEDT on Monday, the Australian dollar was trading at 106.83 US cents, up from 106.76 cents on Friday.
Since 0700 AEDT on Monday, the local unit had traded between 106.65 US cents and 107.18 cents.

CMC Markets foreign exchange dealer Tim Waterer said the Australian dollar initially lost some ground during the Monday morning session, showing caution ahead of the Tuesday central bank meeting.

"It look likes it's fairly cautious trade in the Aussie dollar and we'll see more of that in the lead-up to the Reserve Bank of Australia (RBA) decision tomorrow,'' Mr Waterer said.

"I think whilst we've got that decision looming then the currency may be under a little bit of selling pressure.''

Eleven of the 17 economists surveyed by AAP predict the RBA board will cut the cash rate from 4.75 per cent to 4.5 per cent on Tuesday.

However, Mr Waterer said he expected the interest rate decision at the RBA board meeting will be a close one.

"The deal reached in Europe last week will certainly factor into the RBA's thinking, so I think that there is a case to be made that perhaps the RBA could stay on hold for a while and not have to backflip with a (possible) rate increase in the new year.''

Mr Waterer said he expected the Australian dollar would rise three-quarters of a US cent if the cash rate stayed on hold and fall if the rate was cut on Tuesday.

He said he expected the local unit to trade in a range between 106.50 US cents and 107.30 cent on Monday afternoon.

Meanwhile, Australian bond prices were higher at noon.

At 1200 AEDT, the December 10-year bond futures contract was trading at 95.455 (implying a yield of 4.545 per cent), up from 95.420 (4.580 per cent) on Friday.

The December three-year bond futures contract was at 96.090 (3.910 per cent), up from 96.030 (3.970 per cent).