The Australian dollar is a little lower this morning on reports of a disagreement between France and Germany on the details of the European Financial Stability Facility.

Australia: Offshore events will continue to drive the AUD over the coming days as the world's attention turns to this weekend's European summit. Should European policymakers fail to provide any concrete proposals to address the European debt crisis it appears likely that the market will aggressively sell the EUR, and as a result, the AUD would likely be sold heavily also. Such a scenario could see the AUD trading back below parity in a relatively short time frame. Expect the AUD to remain relatively subdued over the next few days as we head into the weekend. Of interest next week will be the release of CPI data, which will be closely watched by the RBA ahead of their next meeting on Melbourne Cup day.

Majors: As mentioned above, the world's markets remain firmly focused on developments out of Europe. French President Sarkozy and German Chancellor Angela Merkel met yesterday to discuss their plans for the EFSF ahead of this weekends'summit. Equity markets and commodities were sold lower after reports emerged that the talks may have stalled. Merkel appears to be trying to cool market expectations for a swift resolution to the crisis, stating overnight that the Oct 23 summit "will not be the end point of regaining trust. It will be a point at which we act, but much more will follow." In the US, the Federal Reserve released their Beige book, which painted quite a gloomy picture of the US economy. While the US economy is expanding the pace of growth has been modest and there exists "weaker or less certain outlooks for business conditions".

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ECONOMIC CALENDAR

20 OCT AU NAB Business Confidence Q3

UK Retail Sales SEPT

US Existing Home Sales SEPT
US Philadelphia Fed Manufacturing OCT