A SWEEPING upturn in risk sentiment carried the Australian dollar higher in Asian trade today on hopes Europe will agree to a new rescue package that centres on proposals to boost the existing European Financial Stability Fund. "The sudden flurry of activity appears to have reassured markets, but on the other hand it only builds potential for even greater disappointment," said UBS FX strategists in a note. "We continue to see the euro-zone crisis weighing on risk materially," they said. At 4.07pm AEST, the Australian dollar was at $US0.9891 from $U$0.9696 late yesterday. Against the Japanese yen, it was at Y75.566 up from Y74.013. Westpac bank strategists said the better mood means the local currency could climb back above the $US0.9900 level in coming days, though such a move would be a good time to establish shorts. With little domestic data or events for guidance, dealers are continuing to look toward Europe for near-term guidance. "We'll continue to be at the mercy of global risk sentiment," said Emma Lawson, strategist at National Australia Bank. Sue Trinh, a strategist for RBC Capital Markets in Hong Kong, said the rising expectations of a new rescue deal for the euro zone means more gains for the Australian dollar are likely. "I think the Aussie is in buy-on-the-dips territory where any dip to $US0.9500 or $US0.9600 is a good buy from a medium-term perspective," said Ms Trinh. "There are signs that the moves we've seen in the last week have been exacerbated by forced liquidation and that now seems out of the way with the climate seeming to favour a risk rally," she said.

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