Australian dollar soars on eurozone optimism

THE Australian dollar is at its highest levels in almost two months, rising on the back of optimism that the eurozone debt crisis will be contained.

THE Australian dollar is at its highest levels in almost two months, rising on the back of optimism that the eurozone debt crisis will be contained.

At 0700 AEDT, the Australian dollar was trading at 107.10 US cents, up from 106.76 cents on Friday.

Since 1700 AEDT on Friday, the local unit traded between 106.59 US cents and 107.32 cents.

Eurozone leaders last week announced a plan to increase the size of its bailout fund and persuade banks to agree to major writedowns.

Westpac New Zealand senior market strategist Imre Speizer said optimism that European debt woes wouldn't spread to Italy and Spain was still driving market sentiment.

"Momentum is still positive, so there is a fair chance the Australian dollar can go higher this week and the next few days is the best chance of doing that,'' he said from Auckland.

"I think, over the tail end of the week, you're going to get more scepticism around the euro story and that will push it down.''

Mr Speizer said currency traders were watching to see if the Australian dollar would clear 107.65 US cents.

"That's a big level. The whole market is watching it,'' he said.

"That was the peak on September 1. It had a half-hearted attempt a couple of days ago (Thursday) when it got up to 107.50 US cents and then it had another go on Friday night when it got up to 107.32 cents.

"It did break above that level, it will spend a quite a number of days going higher.''

Markets are awaiting the Reserve Bank of Australia's (RBA) interest rate decision on Tuesday afternoon.

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.

Mr Speizer said Westpac expected a cut but thought it would be a close decision.

He said the weak September quarter inflation reading would open the door for a rate cut but the eurozone resolution would ease worries about the economic growth outlook and the need to cut the rate to stimulate the economy.

There will also be two other central bank interest rate decision announcements this week.

The US Federal Reserve meets on Wednesday night, Australian time, and the European Central Bank will meeting on Thursday night.

The market will be waiting to see if either or both central banks move to stimulate their sluggish economies.