Following on from steep losses overnight, the Aussie dollar has made an afternoon retreat back below US dollar parity. The local unit continued to weaken this after the HSBC China PMI number showed manufacturing slowed to an index level of 49.4 in September against a previous 49.9. A reading below 50 indicates a contraction in manufacturing activity.

True to form, global markets are continued to fall under the weight of European debt dramas overnight, with the Fed's interest rate decision exacerbating a decidedly risk-off tone. To recap, the Fed announced what's commonly referred to as 'operation twist,' in which the Fed intends to purchase $400 billion of treasuries with a maturity of 6 - 30-yrs, while selling an equal amount of treasures with maturities on 3-yrs on less. In essence this acts to flatten the yield curve to bring down longer term mortgage rates in an effort to stimulate ailing U.S housing market. It's clear the Fed's plans haven't been warmly by market participants with broad losses across metal, energy and equity markets. Although we consider the Fed's 'operation twist' to be largely US dollar-neutral, the risk off demeanor has promoted US dollar strength across the board.

But the question remains, does the Aussie dollar still have a home above parity? The local unit has a hybrid of directives guiding the way - which of course starts on our very own door step. However it's also important to consider some of the more abstract factors which have guided the Aussie to recent post float highs.  For this we can look squarely to the U.S. in what could be referred to as a 'weak US dollar policy'. Inadvertently, the by-product of the Fed's attempt to resuscitate the economy with stimulus and low interest rates has - in the past - provided a window of opportunity for the Aussie dollar.  However, given the economic strife abroad, paring back of stimulus expectations and soft conditions locally, we consider the window of opportunity temporarily closed. In short, take away the premise of further quantitative easing and the Aussie dollar has lost a major supporting factor. It's clear the global economic environment is not conducive to risk asset strength and appears the never-ending bouts of risk aversion resonating from European and the U.S. are set to continue. In-turn, the odds of a period below parity are great - the duration of which will no doubt be contingent on risk sentiment from abroad. At the time of writing the local unit is buying 100.3 US cents