• AUDUSD recovers to 1.0000 from a low of 0.9660 on Thursday last week
• Market trading on rumours the IMF is preparing a $600 Billion Euro bailout but nothing concrete announced
• Italian Govt now has to pay 7.24% on 10 year debt, how long can it keep paying that kind of interest?
• US consumer confidence smashes estimates, weekly unemployment claims remaining low, US thanksgiving retail sales up 22% from same time last year as the US economy continues to improve.
• Chinese manufacturing data out last week indicates a contraction month on month, a real negative and one of the major causes of the sell off of the AUD last week.

AUDEUR (EUR/AUD)

• AUDEUR 2 weeks ago was 0.7526, fell to 0.7236 Wednesday last week, now stands at 0.7510 a full recovery
• Germany holding firm, saying printing money is not an option forcing peripheral countries to force through budget cuts to get their books in order.

AUDGBP ( GBP/AUD)

• AUDGBP has similar path, from 2 weeks ago fell from 0.6450 (1.55) to 0.6225 now back up at 0.6426 almost a full recovery
• U.K chancellor announced Britain will fail to bring the budget back to surplus in 2014-2015,

AUDNZD ( NZDAUD)

• Almost no movement in the past week for the pair, holding at 1.3050-1.3150 ( 0.7600)
• HSBC upgrades NZ growth expectations in 2012 to 5% growth,  unemployment to drop to 5%.

General Consensus

The Australian dollar continues to be volatile governed by overseas events. A recovery this week in the AUD is mainly based on rumours of a IMF bailout of Italy.

You get the feeling we are in holding pattern with Italy frantically trying to get its debt under control while international investors pull their money out of Italian debt on mass. This has not yet forced Italy to seek outside help, it could be a matter of time.

The European debt crises has eroded confidence around the world, slowing the European economy and the UK economy. The Chinese data out last week that sparked the sell off, demonstrated proof that China now is beginning to slow due to Europe. This will in turn slow Australia over the medium term, and perhaps could be a consensus for a RBA rate cut next Tuesday.

• AUDUSD falls from 1.0300 to 0.9800 in past 9 days
• Consistent sell off due to focus on Spanish/ Italian and U.S debt problems
• Debt yields on Spanish and Italian bonds hold just under the unsustainable 7%
• US budget committee fails to agree on  $1.2T worth of cuts

AUDEUR

• AUDEUR falls from 0.7524 to 0.7270 in past 7 days
• Government changes in Greece, Italy & Spain in past month
• European GDP holds just above 0% growth
• Massive pressure on Spain and Italy to get their budgets in order

AUDGBP ( GBP/AUD)

• AUDGBP falls from 0.6440 to 0.6291 in past 7 days
• UK also trying to get it books in order through austerity, but this is slowing the economy

AUDNZD (NZD/AUD)

• AUDNZD rises from 1.2500 to 1.3150 in past 7 weeks
• NZ election this Saturday causing some uncertainty
• Traders shun Kiwi in favour of AUD
• Note: NZDUSD has fallen from 0.8200 to 0.7475, a 9% fall in 20 days.

General Consensus

The AUD has consistently been sold off against major pairings in the past week due to uncertainty over European debt problems. Economic data out of the U.S has slowly been improving over time.

Market consensus on stocks around the world, and on all “risk” assets which includes the Aussie and New Zealand dollar have fallen sharply, with investors sharp focus on Italy and Spain as the situation continues to deteriorate.

MOVEMBER – Men’s prostate cancer: support from you

World First supports Movember : recognise Men’s prostate cancer and contribute to our Team :

http://au.movember.com/donate/team-details/id/281248/searchterm/world+first

• AUD trades up to 1.0750 on Euro deal, then drops as Greece fails to accept the haircut
• RBA cuts interest rate by 0.25% to 4.5%, playing it’s part in the drop
• The World First Team joins Movember to raise awareness and funds for prostate cancer

The Australian dollar has been volatile over the week, governed again by European events. An announcement to cut privately held Greek debt by 50% was agreed by European leaders last Thursday at midday Australian time. The plan included propping up French and German banks to make sure the write downs on their Greek holdings would not affect their liquidity and solvency.

This was broadly positive with stock markets surging around the world and the AUD strengthening across the board. However this was short lived when the Greek Prime Minister Papandreou announced, without consulting the European leaders or even his own Finance minister, that the Greek parliament will vote to approve the deal, which may go to a referendum in Greece. This caused all stock markets and the AUD to be sold down to the current level of 1.0340. Clear frustration was seen from Angela Merkel and Nicolas Sarkozy telling Greece, “get your act in order or leave the Euro”.

Australian inflation is well under control; housing prices had the biggest decline in 3 years, and a slowing in Chinese growth, had the RBA cut rates to 4.5% from 4.75% on Tuesday. This is still well above all major economies and one of the fundamental factors that the Australian dollar remains historically very high against the USD, EUR & GBP.

Australian growth and demand for the Australian dollar is governed by Asian economies placing orders for raw materials from Australia, to make goods for their biggest consumer markets, Europe and the US. When these major markets slow due to insolvency and confidence issues, this will reduce production in Asia, and reduce the demand for Australian exports directly lowering the value of the AUD.

The World First team view is for the AUD to continue its volatility, all things being equal we see potential upside, if the European situation is resolved, however next on the chopping block is Italy with its massive public debt, stagnant economy, and a rising borrowing cost.

If current market levels still work for you and you would like some certainty, please speak to your dealer as there are a variety of hedging alternatives available and there is no guarantee on what tomorrow will bring.

• Share markets, commodities, and AUD rally over the fortnight
• Encouraging economic data has been released out of the US as corporate earnings season begins
• Rumours of new Euro debt crisis measures abound but no solution

The Aussie dollar is currently holding above parity. Rallying 10% against the greenback, and similarly against other currencies, in a long winded two week relief rally as an increased appetite for risk to gain reward fuelled markets ahead of corporate earnings season in the USA.

U.S. housing starts in September topped expectations providing confidence for global markets. The strongest support for the AUD was the creation of 20k new jobs last month. However job ads were down 2.1% perhaps indicating an easing in the jobs figures to come.

At the same time markets became increasingly optimistic and expectant of a resolution to the Euro zone’s sovereign debt crisis in the EU summit scheduled for the 23^rd. The Guardian Newspaper in the UK sparked a prior rumour that an agreement had been reached to increase the European bailout fund. The Germans quickly poured water on this saying the bailout fund will not be raised beyond the 440 billion Euros already approved nor will Germany’s participation rise beyond 211 billion Euros.

Trading on rumours and headlines, markets have been and shall remain volatile. The European Central Bank has promised unlimited liquidity to European banks to stave off aggressive bond markets and talks of leveraging the bailout fund to increase its size without actually adding funds to it also remain a possibility. However, the 17 Euro nations seem reluctant to commit to permanent solutions, such as a common euro bond issued by the ECB. They seem to prefer measures that buy more time and hope that their economies will grow their way out indebtedness with good fiscal balance.

German Chancellor Angela Merkel talked down expectations of a “bazooka” solution, adding that past errors will not be solved in one stroke. Germany, the euro zone’s strongest economy, has been reluctant to back aggressive measures to contain the crisis due to worries it has already overextended itself as its economy is slowing.

In the meantime, more European nations, such as Spain, have had their credit ratings cut whilst others, such as France, have been placed on a negative watch for a possible downgrade in the future. Greece’s debt is now calculated as requiring a 64% write down to be sustainable and without more imminent funding, Greece will be out of money within a few weeks.

It is hard to see how Asia and the global growth reliant Aussie will maintain high levels of production with the two biggest consumer economies, the EU and USA, in such a heavily constrained position.