SYDNEY (Dow Jones)--The Australian dollar was higher late Wednesday amid rising optimism that Greece's parliament will approve austerity measures needed to steer the country clear of bankruptcy.
With a crucial vote just hours away, the Aussie was in recovery mode breaking back above US$1.0550, its highest levels since Friday, with traders forecasting the rally will extend further if the Greek vote is confirmed.
Without acceptance of the US$40 billion package of budget savings and asset sell-offs, Greece won't secure critical funding from the European Union and the International Monetary Fund, risking quick default on a mountain of debt.
At 0620 GMT, the Australian dollar was at US$1.0564, up from US$1.0477 late Tuesday. Against the Japanese yen, the Australian dollar was at Y85.62, up from Y84.39.
"The Greek yes vote looks to be entirely baked in the cake," said David Scutt, a currency dealer at Arab Bank Australia.
Scutt expects to see the Australian dollar trading back above US$1.0600 if the Greeks vote in favor of the austerity measures, but that could prove to be the near-term peak, he added.
If the concerns over Greece ease, the market will refocus on the domestic economic picture again, which now includes softness in a lot of non-mining sectors, he added.
A policy meeting of the Reserve Bank of Australia on Tuesday is likely to see rates left on hold. The central bank has been sidelined since November 2010 as the economy has slowed due in part to natural disasters.
Employment data next week and second quarter inflation data at the end of July could shape the case for a possible return to interest rate increases in August, according to some economists.
But Ivan Colhoun, head of economics at ANZ Bank, said the case for the RBA to hike interest rates in coming months has steadily weakened over recent months, as the economy has been sluggish.
The RBA will need to see a sharp rise in core inflation in the second quarter to justify further raising interest rates, he said. A rise in core inflation of 0.8% would spook the RBA into action.
ANZ is currently forecasting a rise of 0.6%, not enough to give the RBA the "smoking gun" it needs, Colhoun added.
-By James Glynn, Dow Jones Newswires; 61-2-8272-4685; james.glynn@dowjones.com
