Australian dollar pulls back from record highs

THE Australian dollar was weaker at noon after dropping off from its overnight record high, as traders await news on negotiations from the debt-ceiling crisis in the US.

THE Australian dollar was weaker at noon after dropping off from its overnight record high, as traders await news on negotiations from the debt-ceiling crisis in the US.

At 12pm AEST today, it was trading at 110.29 US cents, down from 110.55 US cents yesterday afternoon.

The domestic currency reached 110.81 cents overnight, the highest level since it was floated in December 1983.

St George economist Janu Chan said the Australian dollar was weakened overnight due to strength in the US dollar.

She said it was generally well supported today on renewed speculation that interest rates could be going up soon in Australia, prompted by stronger than expected inflation figures released today.

Traders would be looking to the US overnight for any developments on ongoing debt ceiling negations, Ms Chan said.

"I think at the last minute they will reach an agreement and raise the debt ceiling, although I still think there's a longer-term issue for the US for a downgrade if that deficit isn't reduced," Ms Chan said.

During the offshore session last night, the White House said finding a compromise to raise the $US14.3 trillion ($13.1 trillion) US debt limit was "essential and possible."

Spokesman Jay Carney, pointing to US Treasury warnings that the world's richest country will run out of cash to pay its bills come Tuesday, said it was "essential for the health of the economy" to let Washington borrow more.

Ms Chan expects the Australian dollar to trade between 110.06 US cents to 110.81 US cents for the remainder of the local session.

Meanwhile, three-year bond futures were weaker.

At 12pm AEST, the September three-year bond futures contract was trading at 95.460 (implying a yield of 4.540 per cent), down from 95.580 (4.420 per cent) yesterday.

The September 10-year bond futures contract was unchanged at 95.060 (4.940 per cent).