The Australian dollar was trading higher against the US dollar this afternoon and regained lost ground after a sell-off sparked by poor Chinese manufacturing data.

Manufacturing activity in China contracted for the first time in a year in July, and was a sign that the latest sign of monetary tightening measures to rein in inflation was slowing the Chinese economy, fuelling investors to move into the safe-haven US dollar. However, buoyed by news that French and German leaders may have reached an eleventh hour agreement over how to resolve the Greek debt crisis yesterday, AUD/USD reached an intraday high of $1.0772 this morning. Trading in AUD/USD could prove to be quite volatile this afternoon as the emergency meeting between EU leaders to craft a second rescue package for Greece, begins. Investors are likely to remain cautious as the meeting progresses since several leaders and finance ministers in Europe had previously warned that the crisis required an urgent solution.

Today will also see Federal Reserve chairman Ben Bernanke testify, which will likely lead to some volatility as he will hopefully provide clarification on news that the Fed is actively preparing for the possibility that the US could default. However, with markets optimistically cautious, the commodity-based currency was trading 0.25% higher at 1.0771 by 2pm (London time).