The Australian Dollar has opened back above USD1.0700 this morning after hitting a low of USD1.0600 in yesterday’s trade.

Australia: While many thought that the AUD was due for a correction, believing that there was greater downward pressure on our local currency, it has rebounded this morning following the strength in the EUR/USD.

It is possible however, that we do see some weakness in the next couple of days given the political instability in our region. Overnight saw mixed results in equity markets across the region, with improved US and European data offset by downgraded economic forecasts from the European Commission.

European equities finished mainly lower with the Euro Stoxx and German DAX off 0.4% to 2508 and 0.5% to 6089 with the FTSE 100 gaining marginally 0.4% to 5938. Whereas US equities were higher in response to the labour market data with the Dow Jones and S&P up 0.4% and the Nasdaq up 0.8%.

With a lack of local data due out today, we expect that the AUD will follow equity markets and any overseas developments. RBA Govenor Stevens will appear before the House Economics Committee, but it isn’t expected that any new information will be released; therefore it is unlikely to be market moving.

Majors: The EUR/USD climbed 0.6% to USD1.3311 from USD1.3252 following strong business confidence data in Germany. The rally was also spurred along by the Greek parliament passing legislation to enforce austerity measures, despite significant downgrades to the EU’s forecasts.

The euro-zone economy is now forecast to shrink by 0.3% in 2012 (previously +0.5%), led by Italy (-1.3% y/y) and Spain’s (-1% y/y). The European economic situation will no doubt continue to feature heavily in the G20 summit this weekend.

US jobless claims released overnight surprised the market, remaining at a four year low, with the result unchanged at 351k against market expectations of 355k. Tonight sees a large amount of offshore data released including GDP results for the 4th Quarter in both Germany (Europe’s best performing economy) and the UK. Germany’s result will be closely watched by the market given the recent developments out of the region.