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Australian dollar seen on hold ahead of EU summit

NEW YORK (MarketWatch) -- The Australian dollar has been receiving more demand as a refuge from European turmoil, but it's expected to keep to a tight range before a European leaders meeting later this week.

"Broadly, the Australian dollar is in a holding pattern ahead of the European Council meeting," said Richard Franulovich, chief currency strategist with Westpac Institutional Bank. He said that the Australian, New Zealand and Canadian dollars are all in demand versus the euro.

The Australian dollar (AUDUSD) traded at $1.007 on Tuesday, up from $1.001 on Monday and a recent U.S. closing low of $0.9695 per Aussie dollar on June 1.

"The Australian dollar has rebounded in June despite the ongoing slide in commodity prices," said John Higgins, senior markets economist at Capital Economics, in a report. He forecast that commodity prices will continue to fall further. But the biggest commodity-price declines have already happened, limiting the downside for the Australian currency, he said.

Australia maintains its triple-A rating, and appetite for the currency will probably increase as the euro-zone crisis raises demand for safe havens, Higgins said.

On Thursday, EU leaders meet in Brussels, where investors hope for a stronger plan to resolve the region's debt crisis. Read about EU proposal to create a tighter fiscal union.

"The Australian dollar appears attractive to reserve managers, including the Bundesbank, seeking diversification, and asset managers, looking for a liquid and easily accessible (unrestricted) way to gain Asian exposure," said Marc Chandler, global head of currency strategy with Brown Brothers Harriman, in a note on Sunday.