The Australian Dollar has opened slightly weaker this morning as the FX markets continue to be driven by headlines out of Europe and the US.

Australia: European debt concerns are the main driver at the minute. Yesterday's report in the Financial Times detailing Italian government hopes of "significant" Chinese purchases of sovereign bonds and strategic investments has been denied by Chinese Government officials. This came hot on the heels of reports on funding difficulties for France's banks and a disappointing Italian bond auction result.

BNP Paribas strongly denied the report and this turned their fortunes around, with BNP shares recovering from being down 12% to finish up 7%! Other French bank stocks rebounded too.

German Chancellor Merkel stated there is simply no system in place for an "orderly" Greek insolvency to take place until the permanent Eurozone rescue fund is established in 2013.

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Authorities are very aware of contagion risk, with the Portuguese Government reaffirming its commitment to trimming its fiscal deficit to 3% of GDP by 2013.

The EU's Van Rompuy called for complete implementation of Italy's budget cutting steps in order to restore confidence in financial markets while US Treasury Secretary Timothy Geithner will make an unprecedented trip to attend Friday's meeting between European finance ministers in Poland.

It was good to see the AUD hold its nerve through all this, while the EUR enjoyed another roller-coaster day. In Australia today, the Westpac Consumer Confidence Survey for September is released at 10.30am. AEST. Confidence levels have fallen for four consecutive months and the equity market falls in August are likely to see another subdued reading

come through. Our indicative range today is 1.0250 - 1.0350.

Majors: The US Dollar Index has risen to its highest level for a few months, as it does still remain a safe haven currency, and this happens as central banks diversify their foreign currency reserves away from the USD as well. So if risk aversion picks up, expect the USD to be bid. US equity markets closed higher. In Europe, Paris was up 1.4%, Frankfurt up 1.9% and London up 0.9%. US small business optimism index improved in September, while UK CPI rose 0.6% in August and 4.5%yoy, as expected.

China remains healthy, which is good. Data is revealing the Chinese economy is travelling in sound growth mode and perhaps, inflation may have reached its highs. Offshore, US retail sales and PPI, euro zone industrial production and Indian inflation data are released.

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