Overnight, foreign exchange activity was all about the Euro for the right reasons for a change which regained composure cracking the US$1.23 mark. This coincided with strength in European equity markets with well attended bond Auctions in Europe also keeping sentiment strong.

US equity markets took European equity market strength and ran with it with the Dow and S&P gaining 2.1 and 2.35 percent respectively. Solid manufacturing data also pointed to a sustained recovery with the Empire state manufacturing index for June rising to 19.57. Manufacturers accounted for 29,000 payrolls in May. Risk appetite was back on the table which came at the expense of the perceived safety plays the USD and Yen, however Gold remain buyout rising over 1 percent on the day. Commodities, industrial metals and energies all record solid gains, by default this led the Aussie higher surging back above 86 US cents – currently trading near day highs of 86.5 US cents

Yesterday, the RBA minutes for the June meeting showed the central bank will continue to take a ‘wait and see’ approach to interest rate adjustments in the near term. The meeting in which the central bank kept interest rates steady at 4.5 percent, the finer points of the minutes showed RBA’s stance on interest rates will remain neutral as they gauge the potential fallout from sovereign debt concerns from Europe. However the minutes did not write off a return to the tightening process, with the minutes stating “disinflationary forces in the economy were not quite as strong as previously expected” with all eyes on Consumer price data to be released late July.

The premise of interest rates on hold locally, has certainly discounted the Aussie dollar somewhat in recent weeks, but arguably the downside attached to interest rates remaining steady has also been built in to the Aussie price. Like local interest rates, at this point the Aussie Dollar is at the mercy of the events of Europe which continue to plague global markets whether perceived or real. However, Monday’s positive industrial production data showed us a glimpse of how some positive sentiment out of the Euro-zone can translate the higher yielding currencies like the Aussie – and the subsequent downgrade on Greece by Moody’s was a prime example of the downside which weighed on US equities. This tells us the Risk averse/appetite scenario remains very much in play which will govern Aussie activity in the near term.

Key economic data from the Westpac leading index and housing starts for the 1st quarter which is expected to grow 7 percent from a previous 15.1 percent.