European debt fears remained a primary focus overnight with Spain in the firing line after Standard & Poor's downgraded 16 Spanish banks following a downgrade of Spanish debt by the ratings agency on Friday. As widely anticipated, official growth data overnight confirmed Spain is now in recession with the economy contracting 0.3 percent in the first quarter to represent a yearly contraction of 0.4 percent. Alarmingly, the economic horizon in Spain appears to be taking on a darker shade of grey given the need for austerity at a time when almost a quarter of the population is unemployed.

After peaking slightly above 104.7 US cents yesterday, the Australian dollar came under mild pressure overnight with the downside capped above the 104 US cent region. Key data in focus today will first come from China with Manufacturing PMI on the docket at 11 am followed by the house price index at 11.30 am. The main event for the Aussie in local trade will be the RBA rate decision due for release at 2.30 pm which is expected to see Stevens and Co cut benchmark rates by 25 bps to 4.0 percent. With expectations of a 25 bps rate cut well and truly baked into the market Aussie dollar direction will be guided by the ensuing statement and of course if the RBA succumb to external pressure to cut by 50bps. Former RBA Governor Bernie Fraser has weighed into the debate suggesting a need to shock the market by cutting rate beyond market expectations. Although a valid argument, the last cut of more than 25bps was at the height of the global financial crises suggesting a move that is reserved for times of significant adversity. At the time of writing the Aussie dollar is buying 104.2 US cents.