After slumping to 11-month lows of 96.2 US cents late yesterday, a pick-up in global stocks assisted the Aussie dollar to regain ground overnight. The US dollar pared yesterday's gains allowing risk currencies and commodity markets to regain composure across the board. Markets found solace in reports that the European officials may implement a multi faceted plan which allows a special purpose vehicle to buy distressed European debt. According to reports the special purpose vehicle will be set up by the European Investment Bank which is owned by European states. This would allow banks to cleanse their distressed debt by selling debt to the special purpose vehicle. Nevertheless, these plans are at this point are unsubstantiated and despite a general bounce across risk assets the overwhelming theme remains that of negativity - with little in the way of concrete plans from European a reprieve from the selling appears to be more the exception rather than the rule.

With little in the way of major marking moving data on the local docket, the key directives for the Aussie dollar will continue to come from abroad, with the European debt debacle no doubt front and centre. Thursday will see German Parliament vote on the expansion of the European Financial Stability Facility (EFSF) while conjecture over Greece's ability to secure next bailout instalment may see risk currencies remain heavy early in the week. The so-called 'troika' which is made up of representatives from the European Union, International Monetary Fund and the European central bank have returned to Athens this week to further evaluate Greece's progress. While we may see some positive headlines from Europe in the week ahead, the general sense of impending doom has and will likely remain the primary theme as European leaders struggle to build a consensus on the right course of action to avoid a full scale crisis. 

In the absence of local economic data, we expect the Aussie dollar to adhere to local and Asian equity moves. Whichever way you look at it, the current economic environment is not the ideal environment for risk currencies to thrive; therefore we expect a 'sell on the rallies' type approach until we get some solid headlines from Europe. At the time of writing the Aussie dollar is buying 98.2 US cents.