Bell FX Currency Outlook: The AUD has fallen again overnight as concerns over the Euro Zone debt crisis continue to drive the markets.
Australia: Given we have now had a solid break back below parity, a move down towards USD0.9700 is now looking increasingly likely.
China began diversifying away from the U.S. dollar and could most likely be buying far more European government debt.
Attention will be firmly focused on today's release of the HSBC Flash China PMI for December, which is due out early this afternoon. With China as our largest export partner, any further sign of weakness in the Chinese economy could see the AUD slide continue. Falling commodity and equity markets, and a stronger USD, are all adding to the current negative sentiment surrounding the AUD.
In order to turn the AUD's fortunes around, we'd need to see some solid evidence out of Europe that the relevant EU officials are moving to address the short term issues, but there seems to be little evidence of this at the moment. Despite the initial positive reaction to last week's summit, confidence once again appears to be diminishing.
Majors: The euro sank below USD1.3000 for the first time in 11 months overnight. European stock markets were also lower, with Paris down 3.3%, Frankfurt down 1.7% and London 2.3% lower. With money flowing out of Europe and back into the USD, US 10 year yields dropped back to 1.9%. In stark contrast, Italy's 10 year yield increased to 6.8%.
The majority of the market is predicting that the EUR will continue to fall against the USD over the coming months and throughout 2012. Some are even looking for the common currency to fall though parity against the USD. Following the rush into the USD, the price of gold was also pushed lower, closing down around 4.0%.
Other base metals were also significantly lower overnight, with copper off by more than 5.0% and lead and nickel both down by more than 4.0%.
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