Australia: The AUD has consolidated around the USD 1.0700 level in the last couple of days in modest trading conditions. US markets were closed on Monday because of July 4 Independence Day but before the holiday, Wall Street enjoyed its strongest week in two years, with the Dow surging 5% in five days.

Europe's debt worries seemed to be weighing on the markets, with the Moody's ratings agency downgrading Portugal a day after S&P's warning that a proposed rescue plan for Greece could trigger a default. In a sign US industry could be recovering from supply disruptionscaused by the Japan earthquake, government data showed that new orders for manufactured goods rose 0.8% in May. The markets will be watching reports due later this week about jobless claims and unemployment for signs of strength in the US economy.

Locally, the Reserve Bank of Australia was on hold again yesterday. “Qualified” is the feeling from yesterday’s Statement. Global growth is still expected to be average or above, despite the “challenging” international environment (which is the qualifier). 2011 GDP forecast has been downgraded but it does still seem that the rate scenario remains unchanged and they are holding the view for rates to eventually go higher but with early 2012 more likely than prior to the end of 2011.

The FX markets will look ahead to the labour force data on Thursday to gauge momentum in the Australian economy. In Australia today, there isn’t any data due for release.

Majors: The USD was steady as news out of Europe indicated the debt crisis in the Euro Zone is far from over. The positive news out of Greece last reduced the risk of a default but now we have Moody’s decision to cut Portugal’s credit rating four notches to junk status Ba2 with negative outlook to take into account.

Moody’s also warned that banks rolling over Greek debt might have to take impairment charges, and this would undermine their balance sheets. This followed S&P’s warning on Monday that the debt rollover plan proposed by French banks, if adopted, could constitute a selective default. Potential contagion spreading into other peripheral European economies remains, so caution returns and the markets will also look at the US employment data on Friday very keenly