Dollar up as European banks take action

THE Australian dollar is more than one US cent higher after the European Central Bank announced new measures to provide cash-strapped banks with liquidity.

THE Australian dollar is more than one US cent higher after the European Central Bank announced new measures to provide cash-strapped banks with liquidity.

At 7.00am (AEDT) today, the Australian dollar was trading at 97.55 US cents, up from 96.56 cents yesterday.

Since 5.00pm (AEDT) yesterday, the local unit traded between 96.36 US cents and 97.66 cents.

The euro also gained ground against the US dollar overnight, up more than one US cent.

Overnight, European Central Bank (ECB) president Jean-Claude Trichet said the bank would continue to assist lenders in a bid to avert a possible credit crunch in the Eurozone.

The Bank of England (BOE) took similar action to help banks, announcing overnight a new program of buying government and corporate bonds from commercial banks over a four-month period to encourage lending and, in turn, boost economic activity.

Markets cheered the news with European stocks finishing the session more than three per cent higher and US stocks up 1.5 per cent.

HiFX senior trader Stuart Ive said the actions by the ECB and the BoE encouraged traders to invest in risk assets such as equities and the Australian dollar.

"The good news is the Europeans are finally doing something," Mr Ive said from Auckland.

"The more important reasons why markets are higher is the European Central Bank reinstating its best tools for fighting the currency crisis.

"Interbank lending has basically ceased and left the ECB and the lender of last resort, now they look like they are a lot more proactive."

Tonight, Australian time, the US will release non-farm payrolls data for September, the official measure of the US employment growth.