Australia: The Australian dollar appears to be building a base in the low USD0.8000s as international financial markets remain volatile. Support around the USD0.8050-0.8070 region has held up for now, with the AUD likely to remain contained within a range between USD0.8050-0.8350 in the short term. The key factors contributing to the AUD’s current levels include the European sovereign debt issues, potential for a slowdown in China, the Federal Governments proposed new mining tax and increasing tensions between South and North Korea. There is even talk emerging that the RBA’s next move on interest rates may be to lower the official cash rate because of the changing outlook for the world economy. All of these issues add to a downside bias for the AUD in the short term. During today’s local session we have the release of the capital expenditure survey for quarter one. The data is not expected to have too much of an affect on the market, with the AUD expected to track any movements in the equity markets.
Majors: The EUR was sold off again last night as investors continue to worry about the region’s debt crisis. The Wall Street Journal reported overnight that Banco Bilbao Vizcaya Argentina SA, Spain’s second largest bank, was having difficulty renewing $1bio in short term debt. There was also a report in the Financial Times that the Chinese might be reviewing their holdings of euro-zone debt. Interbank lending rates continue to rise as banks become increasingly wary of lending to each other given the potential for exposure to countries such as Greece, Spain and Portugal. In contrast to the problems in Europe, the US economy continues to provide positive news. US new home sales rose by a better-than-expected 14.8% in April, while durable goods orders were up by 2.9% in the same month.