Bell FX Currency Outlook: The Australian Dollar is
trading slightly higher this morning on renewed
thoughts the RBA will leave the cash rate on hold at its
meeting on July 3 and that the Australian economy, in
general, is holding up in the face of Europe's woes.

Australia: Markets were generally quiet overnight ahead of the EU
Leaders Summit tomorrow night. Disappointing US economic data and a
rise in Spanish and Italian bond yields saw losses in equity markets early
in the night, but US equity markets did close higher after a rally in the
second half of the New York session. In Europe, Spain sold €3.08bn in
bills, with the 3-month note yielding 2.36%, well above the 0.85% at the
previous auction. Italy sold €3bn of zero coupon 2014 bonds at 4.71%,
higher than the 4.04% at the May auction. The weak auctions saw
Spanish 10-year bond yields rise from 6.7% up to 6.9%. US data also
weighed on markets with consumer confidence trending lower again,
falling to a 5-month low in June. Today there is no key data in Australia
and notwithstanding the AUD's correlation with commodities, which points
to a firm AUD for now, we feel there is a chance the AUD could react to
each and every "headline" on Europe, ahead of the EU leaders meeting on
Thursday, with markets possibly getting their hopes dashed with "no new"
good news. On that basis, we feel there is more risk on the downside with
the AUD in the immediate term.

Majors: The major currencies were fairly subdued ahead of the EU
Summit with little price action to speak of. Officials in the euro area
unveiled plans for tighter fiscal integration, which would require the
budgets of member states to be pre-approved by all other members. If
agreed upon, the plans would represent a step towards solving the
fundamental problem of fiscal integration, however, opposition is likely to
emerge from a number of nations during the EU Summit, and as such the
FX market has thus far discounted the likelihood of their success. EU
President Herman Van Rompuy released a 10-year road map for Europe
with its key proposals including common banking supervision and deposit
insurance and a 'criteria-based and phased' move toward joint debt
issuance. It also suggests the EU could impose upper limits on annual
budgets and debt levels of euro area nations. In Europe tonight we have a
bill auction in Italy and the preliminary German CPI for June. In the US,
durable goods orders and pending home sales for May are released.

Economic Calendar
27 JUNE NZ Imports / Exports MAY
GE Consumer Price Index JUN
US Pending Home Sales MAY
NZ Trade Balance MAY