Australia: Yesterday the AUD fell steadily throughout the day as our equity markets posted significant losses. The AUD fell from a high of USD1.0470 early in our trading session yesterday, down to USD1.0320 at the end of the day.

The AUD had further losses during the offshore market reaching a low of USD1.0256 before rebounding on reports from the Financial Times that a Chinese sovereign wealth fund (China Investment Corp) may purchase a significant amount of Italian bonds. The AUD is currently trading at USD1.0350.

The losses during the offshore session can be attributed to the continued concerns over the European debt crisis.

The market is now pricing in a 98% chance that Greece will default and thus putting enormous strain on some of the largest French banks since they have such a large exposure. Rumours continue to swirl that this exposure by the French will see Moody downgrade their banks credit status.

Due for release locally today is the NAB Business Survey for August. It is expected that the recent volatility will have an impact on the reading and see some subdued results.

Majors: As mentioned above, the US equity markets had a late rally at the news that a Chinese sovereign wealth fund may purchase Italian bonds.

Markets were down about 150bps with an hour to go in trading, and rallied following the news, with the DOW finishing up 0.6% at 11061 and the S&P500 up 0.7%. The reports on the purchase of Italian bonds not only affected the US equity markets, but also saw the EUR/USD rally after breaking through the key psychological level of USD1.3500 yesterday; its lowest level since 16th February this year.

The EUR/USD is currently trading at USD1.3660. It isn't expected to hold onto these gains for too long, as the fundamental problems in Europe are very well known and unlikely to be rectified any time soon.

Markets are now just waiting for confirmation that Moody has downgraded the French banks; further cementing the likelihood of a default by Greece. Another currency pair that fell through an important level was the GBP/USD which fell to its lowest level since the beginning of the year.