The Australian dollar recorded steep losses overnight alongside global equity and commodity markets with Europe's economic crisis once again the centre of attention. The local unit breached the 103-figure late in yesterday's domestic trade before extending losses as Europe opened for business with price action falling to lows of 102.42 US cents. A global bid for safety saw markets participants seek out all the usual haunts with U.S treasuries the asset class of least resistance forcing 10-year yields to record lows, while currency flows continued to provide support to the perceived safety of the dollar and Yen.

Once again, markets focused on the economic plight of Southern European economies with Spain, Italy, and Greece in the spotlight. Peripheral bond yields climbed with Spanish 10-year yields reaching peaking at euro-era highs of 7.56 percent - above and beyond the 'bailout zone' which marked beginning of the end for debt veterans Greece, Portugal and Ireland, who went on to seek financial aid.

While attempts to ring-fence Spain from its embattled banking sector provided some short-term relief, it's now clear these attempts have failed to have a sustained effect on market confidence as concerns mount Spain will be the next on the list of bailout casualties. These concerns are exacerbated by fears Europe's rescue funds don't have the capacity to bailout Europe's fourth-largest economy. The domino effect has also dragged Italy into the fray which alongside Spain placed bans on short-selling to combat indiscriminate selling across their respective equity markets. Meanwhile, Greece has returned to forefront of Euro region concerns following reports the IMF may cut off financial support. Although the IMF dismissed the rumor, anxiety over Greece's ability to adhere to budget deficit reduction targets remains a primary stumbling block.

Despite relative strength against its high-beta counterparts, the Euro's run of bad luck continued, hitting fresh 12-year lows against the Yen and 2-year lows against the greenback. The Aussie's fall was only to be outdone by its commodity counterpart the Kiwi with both currencies falling alongside global equity and commodity markets.

With a decidedly negative offshore lead, local markets are set to carry the negative momentum before the release of the HSBC flash manufacturing PMI at 1230 AEST. Also in frame this morning is a speech from RBA Governor Glen Stevens in Sydney at 1305 AEST.

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