Bell FX Currency Outlook: The Aussie Dollar unwound the last two days of gains, hitting a low of 1.0232 against the greenback overnight following falls in European markets and a mixed read on Wall Street.

Australia: The question for our AUD and currency markets seems to be to what extent will divergence between the European situation and the state of the US economy reach. US data continues to confirm positive signs of improvement in the US economy leading into 2012 whilst disappointing data is still being released across the Atlantic in Europe.

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Better than expected US employment and Retail Sales data saw US stocks recover from an early sell off to make small gains. Banking stocks continued their third day of gains despite the weaker lead from Europe and Eurozone debt concerns setting in once again.

Bank of America led the way advancing 7.4% to $6.24. The Dow Jones gained 17 points to close at 12,435.45 and the S&P 500 added 0.39% to 1282.31 while the FTSE 100 fell 0.8% to 5624 and the German DAX declined 0.3% to 6096. It seems then that for now, local conditions aside, the significant risks in Europe will weigh on the AUD more than encouraging signs in the US. We see rallies short lived for now, with AUD likely to test downside support levels in coming days.

Majors: US Employment data and jobless claims improved with the ADP Employment data showed a rise of 325k jobs in December, well above the expected 178k jobs. This figure may be impacted by seasonal factors but is still the largest monthly gain since 2001.

Jobless claims also beat expectations falling from 381k the previous week to 372k. US Retail Sales also showed signs of improvement rising 3.5%y/y from 2.8%y/y the previous month. In Europe, the Euro slumped to 16 month lows led lower by Spain and Italy as Eurozone debt tensions outweighed the strong US jobs data. Oil prices spiked higher overnight as Europe confirmed it would ban Iranian oil exports with Saudi Arabia stepping in to close the shortfall, closing at USD 101 per barrel (WTI). Gold ended slightly higher with Euro-led risk aversion in the market to close higher at USD 1,621.

Markets will watch closely for US unemployment figures and manufacturing data due for the US tonight.Economic Calendar
06 JAN AU AiG Performance of Construction Index Dec
EU Euro-Zone Unemployment Rate NOV
EU Euro-Zone Consumer Confidence NOV
US Non-Farm Payrolls DEC