The Australian dollar has jumped to a one-month high on hopes of a resolution to the US political stand-off over the debt ceiling.
Early Tuesday, the local unit was trading at 95.01 US cents, up from 94.67 cents on Monday.
The Australian dollar bounced above 95 US cents, to its highest point since September 19, after US Democratic and Republican Senate leaders emerged from negotiations confident they would strike a deal to avert a debt default.
They have three days to come to an agreement on extending the US debt ceiling before the October 17 deadline.
News of a possible agreement is good for risk-seeking investors, ANZ senior manager FX in Auckland Sam Tuck said.
“The Australian dollar and all associated risk currencies have seen a bit of a bid on hopes that they are imminent in the US to providing us with a solution or a deal,” Tuck said.
“US President Barack Obama was scheduled to start a meeting with the Congressional leaders.
“It has all the right people in the right place to agree to a deal and bring the parties together.
“That’s the real driver behind the markets, that on this Columbus Day, the politicians have been working hard and have come really close to a deal.”
Treasurer Joe Hockey says the Australian government has “back-pocket plans” to deal with the fallout should the United States defaults on its debt repayments.
Hockey, who is in Washington for meetings with the World Bank and International Monetary Fund, said the impact of the US defaulting on its debt repayments was “inconceivable”.
If the US suffered a “heart attack” the rest of the world would be affected, but the Australian government had contingency plans in place, he said.
“Certainly we have back-pocket plans to deal with whatever arises over the next few weeks as a result of negotiations,” he told CNBC Television.
The “salient lesson” from this crisis for Australia was the domestic economy could not be allowed to get to such a point – and the nation must live within its means, he said.
President Obama was forced to cancel appearances at the recent APEC summit in Bali and the East-Asia Summit to address the ongoing problems in Washington.
Hockey said the US quandary hadn’t changed the way Australia viewed its key ally, but the president’s failure to show up to these key summits hadn’t been received well by Asian nations.
“The fact that they were unable to attend because of domestic problems sends a wrong message,” he said.