Bell FX Currency Outlook: Volatility has increased in the FX markets this morning after the surprise announcement over the weekend Cyprus bank depositors must assist in the bailout of their banking system.

Australia: In an unprecedented move not seen in the earlier bailouts of banks in Ireland, Portugal, Greece and Spain, the Cyprus government has agreed to tax depositors at the rate of 6.75% on deposits of less EUR100, 000 and 9.9% for amounts in excess.

This measure which still has to be approved of by the Cypriot Parliament today but is designed to raise EUR5.8bn along with the EUR10bn to be approved by the 17-member Eurozone countries.

These measures aim to cap Cyprus debt to GDP at 100% by 2020 which is higher than the present level of 93%.

In early morning trade today we have seen the AUD fall into the mid 1.0300's after touching 1.0400 over the weekend. The EUR has tumbled as well as markets are concerned on how depositors might react in other countries that have ongoing banking and economic issues.

Locally our attention will focus this week on the release of the RBA minutes from this month's meeting.

Over the weekend we learned that the cumulative federal budget deficit for the first 7 months of this fiscal year stood at $26.8bn largely as the result of lower company taxes while personal income tax revenue was higher and spending slightly less than projected.

This will most likely result in a budget deficit of $15bn (approximately 1% of GDP) for this fiscal year.

Majors: Markets on Friday were generally quiet after wide range of data from the US including the CPI which showed a 2%yoy increase in inflation (excluding food and energy) and a disappointing consumer confidence figure from the University of Michigan that saw it fall to 71.8 as compared to the 77.6 figure from last month and the 78.0 figure that was expected.

Industrial production and manufacturing activity were all slightly better than forecast. Overall equity markets in Europe and the US were modestly lower.

In Cyprus, the move to tax deposit accounts was seen as an important measure to ensure the banks in the country did not close their doors creating even more chaos in the local economy.

With a bank holiday scheduled for today and President Anastasiades due to address the country as well, individual depositors over the weekend sought to withdraw as much as they could from their accounts.

The AUDEUR rate jumped this morning in reaction and we would expect trading to be very volatile over the next few days as this crisis plays out.
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