Australian Dollar: The Australian Dollar broke through critical support levels yesterday as another banking saga in Europe hit headlines and a shock contraction of the Chinese manufacturing sector was confirmed. After starting the morning around 0.9840 rumours a previously agreed bailout of Belgium Bank Dexia was collapsing hit hard at risk appetite and the Aussie fell easily through support at 0.9800 to briefly settle at 0.9785.

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In the next 90 minutes, while markets were still reeling from the first shock, Chinese PMI very unexpectedly fell to 48 from a previous 51 and the Aussie sank further to a session and fresh 6-week low around 0.9760. Heading offshore, the mantra "things always come in threes" came to fruition as risk sentiment took another hit from a poorly subscribed German bond auction, raising fears the European Debt Crisis is affecting the region's stalwart economy. With risk aversion snowballing the Australian dollar fell to a low of 0.9670 before paring some of this loss to start the day above 97 cents at 0.9710.

We expect a range today of 0.9600 - 0.9730

New Zealand Dollar: Two key risk events during Asian hours yesterday sent the Kiwi south, after an early morning rally tested 0.7500. The first hit came from Europe where rumours surfaced the Dexia Bank bailout is likely to fall through; the NZD fell 60 points on heighted Europe fears. Soon to follow was Chinese PMI and a drop to 48 indicated manufacturing activity had fallen into contraction, with negative implications for demand for New Zealand's resources and overall global growth.

Heading into offshore hours an undersubscribed bond auction in Germany hijacked sentiment and created fears the European debt crisis is ebbing on the shores of the strongest economy. Establishing support around 0.7390 it is here we open this morning and this morning we look ahead to local trade balance figures for the month of October, where markets are expecting a reduction in the monthly deficit of nearly NZ$300 million. Looking at the cross rates the New Zealand Dollar is higher this morning against the Aussie at 1.3090 (0.7639).

We expect a range 0.7320 - 0.7430

Great British Pound: In a tumultuous twenty-four hours the Great British Pound has lost over 0.9% of its value, although it has fared comparatively well in a risk adverse environment.

Helped locally by the minutes of the last Bank of England meeting, it was recorded policymakers are wary of further monetary stimulus despite a worsening situation in the Euro-Zone. They agreed in entirety that now was not the time to be printing more money however officials were split when it came to the likelihood of further stimulus when the current round finishes in February 2012. Cable bounced off support near 1.5560 on the more positive than expected report although the gains were washed away after a disappointing bond auction in Germany later in the session.

Holding for the most part above the critical 1.5500 level this will be the level to watch for the short-term. Unsurprisingly with risk aversion mounting the Pound sits higher again against its antipodean counterparts, marginally above 1.6000 against the Aussie and 2.0900 against the Kiwi.

We expect a range today of 1.5940 - 1.6100

Majors: The Euro tumbled to fresh 6-week lows after Germany failed to receive sufficient bids at an auction of its sovereign bonds overnight. Earlier in the session, rumours of a bail-out collapse for Belgian Bank Dexia hit the wires and the Euro feel from levels above 1.3520 to finds support around 1.3460. A huge 35% of the 10-year securities being auctioned off by Germany were left unsubscribed and combined with contractionary figures for Europe's services and manufacturing sectors the 17-nation currency fell through some critical levels to touch lows near 1.3320.

The Greenback strengthened not only against the troubled Euro, but across the board last night after Moody's affirmed the US's credit rating despite the failure earlier this week of a US congressional committee to agree a deficit reduction plan. Combined with an appearance of the Bank of Japan in the market yesterday and a better than expected Core Durable Goods figure for the month of October the safe haven pair trade higher this morning at 77.32 after trading as high as 77.56 earlier in the session.

Data releases:

AUD: No data due for release

NZD: Trade Balance

JPY: No data due for release

GBP: Revised GDP q/q; CBI Industrial Order Expectations; Prelim Business Investment q/q

EUR: German Ifo Business Climate

USD: No data due for release