Bell FX Currency Outlook:
The AUD is slightly firmer again this morning after a night dominated by a weakening EURO, which has reached new 16-month lows against the US Dollar.

Australia: A key meeting between German and Italian leaders failed to provide clarity on the resolution of the euro-area sovereign debt crisis and this occurred simultaneously with the release of German GDP data which showed a mild contraction in Q4 of 2011.

Throw in Fitch's statement that the ECB must do more to prevent a "cataclysmic" euro collapse and sentiment is getting rocked again. Oil declined on these concerns and as crude inventories rose, while base metals finished higher and soft commodities remained mixed.

In our time zone today, there is the release of Chinese inflation figures which most expect will show some moderation, with CPI expected to have fallen to 3.9% year on year to December, compared with November's result of 4.2% and last year's peak level of 5.5%.

There are no major releases today in Australia so as we near the middle of January 2012, it seems our booming mining sector and high interest rate yield, when compared to the rest of the world, is still going to prove important when trying to decide what is in store for the AUD.

A collapse in the Euro Zone would seemingly ensure one or more rate cuts by the RBA but that said, RBA officials are on record stating the mining boom is still in its infancy with a A$450bn investment pipeline.

Majors: As mentioned above, the poor sentiment in Europe weighed heavily on the EUR. In last night's session, EUR/USD managed to slide through the afternoon and tested EUR1.2660 which is a new 16-year low.

In addition to comments above, negative sentiment was compounded by reports the EU Parliament group has objected to the new draft of the Euro area fiscal treaty and Greece may require an additional EUR15bn. Across the Atlantic, the Fed's Beige Book said the US economy expanded at a "modest to moderate pace" in December and in the summary points to an improvement in economic conditions in recent months.

This is consistent with the recent US data flow, especially on the labour market, which suggests the US economy is beginning to pick up. Tonight sees the ECB and Bank of England announce their rates decisions with both expecting to keep rates on hold.

Economic Calendar
12 JAN EU Euro-zone Industrial Production NOV
EU ECB Rate Announcement
UK BOE Rate Announcement
US Retail Sales DEC