Dollar charges back as Euro debt fears ease

THE Australian dollar is staging a rapid recovery this morning after hitting its lowest levels in more than a year overnight.

THE Australian dollar is staging a rapid recovery this morning after hitting its lowest levels in more than a year overnight.

During the offshore session overnight the local unit fell to a low of 93.88 US cents after the Reserve Bank of Australia indicated it was open to an interest rate cut if inflation pressures ease.

However by 7.00am (AEDT) today, the Australian dollar was at 95.43 US cents, up from 95.22 cents at the end of the local session yesterday.

Bank of New Zealand currency strategist Mike Burrowes said the Australian dollar is charging back on the news of a European banking recapitalisation plan.

"That's been on a story around about European leaders understanding the urgency to act," he said from Wellington.

"In particular, that they need to undertake steps to bolster the European banking system."

European Union finance ministers are examining ways of co-ordinating recapitalisations of financial institutions, the Financial Times website reported.

The details of the plan are being discussed but EU ministers meeting in Luxembourg said they had not done enough to convince financial markets that Europe's banks could withstand the current debt crisis.

Mr Burrowes said the comments show that European leaders are beginning to understand the urgency of solving the debt crisis.

"It's a move away from worrying about the sovereigns to trying to put more capital back into the banking system," he said.

"It allays concerns that those banks could run into trouble if we saw Greece default."

Mr Burrowes expects the Australian dollar to trade in a range between 94.80 US cents and 95.50 cent today.