Bell FX Currency Outlook: The Australian Dollar is slightly weaker this morning following a further deterioration in sentiment due in the main to an increase in risk aversion with Spanish sovereign bond markets remaining very unstable.

Australia: Spanish government 2-year note yields have increased moved from 4.00% in early July to 6.64% and this has brought the fall in sentiment referred to in our headline. Markets are not seeing an obvious near term solution except for the ECB Securities Markets Programme and so as a result, markets are sensing building near-term risks for the AUD.

News that Greece may not reach its debt reduction targets is adding to the mix. The US Dollar may be in for a period of strength if there is no policy intervention in Spain from euro zone members or international agencies.

Weak euro zone PMI data for July added to the pressure on EUR, seeing it to a low of 1.2042. Add this to the mix. Moody's have placed Germany, Luxembourg and the Netherlands on negative credit watch due to the worsening sentiment in the euro zone.

So the AUD is seemingly under undoubted pressure as a result of all these developments. Potentially countering this is the sentiment here, which if one goes by RBA's Glenn Stevens, is good. He stated yesterday that Australia's economic performance was due to good policy as well as luck and sees the economy well placed to weather a storm from offshore.

Today we have the CPI for the June quarter with the market's median forecast being 0.6% for both the headline and underlying result.

The RBA appears to be in a wait and see mode and seems unlikely, at this stage, to ease monetary policy in August, and this is consistent with Steven's speech yesterday. A relatively range bound day today we feel, with the only real risk being on the downside for now.

Majors: The US dollar was stronger alongside the risk aversion scenario in Europe. China data on Manufacturing was up yesterday however Europe fixed that. A number of US companies reporting overnight missed revenue estimates, adding to the gloom in America.

US stocks slumped overnight as did Frankfurt, Paris and London. On commodities, WTI oil was up while LME Base metals fell 0.2% but copper and nickel firmed slightly. Offshore tonight the much anticipated German IFO index is due with markets predicting another fall. UK GDP is also out with a slight fall expected which would actually earmark a "technical recession".
Economic Calendar
25 JULY AU CPI Q2
NZ Trade Balance JUN
US New Home Sales JUN