The Australian dollar ended the day flat after initially rising strongly on optimism that the new Italian prime minister can steer the country away from defaulting on its debt.
At the local close, the dollar was trading at 102.86 US cents, down from an intraday high of 103.5 US cents, but up from 101.51 cents on Friday.
The positive headlines out of Italy as well as Greece helped push the Australian dollar and equity markets higher this morning, said TD Securities senior strategist Roland Randall.
‘‘The markets are clearly pricing in a swift resolution to the immediate political crisis in Italy and also the Greek transition to the new PM being on-track,’’ Mr Randall said.
But the renewed confidence faces a big test later today, when Italy is scheduled to hold an auction of 5-year bonds.
Former European commissioner Mario Monti is moving to form a new government to lead Italy out of an alarming debt crisis that has shaken the euro zone and toppled his predecessor Silvio Berlusconi.
The economist, who officially has a maximum of 10 days within which to put together his government, vowed ‘‘to resolve the financial situation and resume the path of growth, while remaining attentive to social equity’’.
On Friday, Greek Prime Minister Lucas Papademos was sworn into parliament and is now expected to ratify a crucial EU bailout deal and pull the country back from the brink of bankruptcy.
Mr Randall said there was little other data that could move the Australian dollar.
‘‘At the moment, we see very little in terms of what’s in the calendar that could really surprise.’’
On Tuesday, the Reserve Bank of Australia (RBA) will publish the minutes of its November board meeting when it cut the cash rate by 25 basis points to 4.5 per cent.
TD Securities forecasts RBA to lower the cash rate by another 25 basis points in the first quarter of 2012. The fixed income market is already fully pricing in a 25 basis point cut in the cash rate in December.
The RBA’s trade weighted index was at 75.5 on Monday, up from 74.8 on Friday.
