Bell FX Currency Outlook: The Australian Dollar has opened this week slightly lower after significant falls on the US stock market on Friday night.

Australia: The Dow Jones, S&P and Nasdaq all lost more than 1% Friday. The dynamic seems to have changed in the US currency market on Friday night in that markets are trying to now decide whether to buy or sell the USD when stocks fall.

For most of last week, lower equities meant a lower USD as investors reduce exposure. However this dynamic changed with the USD rising against the EUR, the GBP as well as the AUD and NZD.

In light of the uncertainty over the Fed's exit strategy, volatility has returned to FX markets. High-carry currencies, especially those in emerging markets (EM), have come under pressure, while low-carry G10 currencies have generally performed well versus the USD.

The AUD/USD was on the selling end of USD strength Friday night though it stabilised late in the session as US stocks reversed. It's opened 40 points higher first thing this morning in the wake of the weekend China manufacturing data.

It's a busy calendar this week with the RBA meeting tomorrow where the market is 83% priced for no change at 2.75%, especially given the AUD has fallen more than 5% since the cut in May.

The key retail trade report for April is expected to show growth of 0.5% (based on online and the Business Survey). There's company profits, sales, inventories and mineral exploration expenditure, all part of Wednesday's GDP equation.

April trade data is out Thursday. NZ has a public holiday today.

Majors: As stated, major exchange rates were largely weaker against the USD on Friday evening amid weaker equity markets in the North Atlantic. Most moves reflected a modest but generalised decline in risk tolerance.

Over the weekend, China's official manufacturing Purchasing Manager's Index (PMI) beat market expectations in May. Indian GDP grew 4.8% y/y in Q1 2013.

Overseas this week, the European Central Bank will meet on monetary policy and after cutting the policy rate by 25bps at its last
meeting we expect the stance of policy to remain unchanged.

The key release in the United States will be non-farm payrolls and the unemployment rate for May (released on Friday). The ISM manufacturing index for May will also be watched closely (tonight).

There are several US Federal Reserve officials scheduled to speak which, given the recent speculation around the timing and pace of tapering to the Federal Reserve's asset purchase program, could add to recent volatility in financial markets.
Economic Calendar
03 JUNE AU AiG Performance of Mfg Index May
AU Retail Sales Apr, TD Securities Inflation May
AU RBA Commodity Price Index May
CH HSBC MANUFACTURING PMI MAY
US ISM MANUFACTURING MAY