Investor fascination with a manufacturing recovery over the summer months took a full-on slap across the face Tuesday, as fears resurfaced over the potential for further red ink across the nation's banking system. The growing appeal of risk aversion had a greater impact on the value of the Japanese yen rather than the dollar. At ¥92.57 against the dollar and ¥131.52 against the euro, the post-election yen is now at a seven-week high. After further equity market weakness in Asia and Europe, U.S. stocks have actually steadied despite a further blow to confidence from the ADP employment report.

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The ADP report showed August job losses of 298,000 and above the 250,000 consensus view. Even though labor market weakness is a typical lagging indicator investors are hungry to see some further indication of stability and a sign that corporations are about ready to stop shedding labor. Sadly, that's not the case right now and we should look forward to a rise in the official rate of unemployment on Friday when the department of labor releases the August non-farm payroll data. The rate is widely expected to reach double-digits before job-shedding is done. So far some 6.7 million jobs have been lost in the recession.

Elsewhere there is little to focus on. The EU confirmed a 0.1% second quarter contraction in Eurozone GDP, which hardly impacted the euro which currently buys $1.4204. The pound is slightly firmer against the dollar at $1.6226.

Australian growth surprised to the upside in the second quarter and the economy grew at a 0.6% pace both quarter-over-quarter and year-over-year. Market consensus was for about half of that. Earlier in the week the RBA underscored the distinction between rebound and the health of the financial system. Today's GDP report provoked Aussie dollar buyers to rethink a 2009 rate rise after all - despite the strong message from the previous day that there simply is no need. Goldman Sachs reaffirmed a prediction of a half point November rate increase from the RBA.

The flux in the Australian market has created a notable divergence in the fortunes of the local dollar and that of Canada - another resource-rich nation. The two are strongly correlated and have moved pretty much in lockstep as the second quarter rebound indicated firmer commodity demand.

The Aussie dollar has risen today to buy 83.10 U.S. cents while the Canadian dollar has fallen to 90.37 U.S. cents. Naturally, fears over the health of the domestic U.S. economy play a large part in determining the strength of Canadian recovery.

Bond yields around the world continue to deflate on this ongoing resumption of risk aversion. Many central banks have underlined the likely weakness in recovery and although some have thrown bones to the exit-strategy hungry crowd, bond prices appear to be more willing to follow the words of central bank wisdom at this stage. A recovery in equities would be needed to alter that thought process.