The Australian Dollar traded below 0.9700 on Friday as European sovereign debt issues continued to dominate the market's attention but has regained lost ground early today.

Australia: In early trade this morning, the AUD has jumped a full US cent to above 0.9800 on a report the IMF is putting together a EUR600bn loan package for Italy.

[Kick off your day with our newsletter]

With a lack of activity out of the US after their Thanksgiving holiday on Thursday, financial markets continued to be focussed on European sovereign debt issues, with yields continuing to spike higher, as downgrades by the rating agencies continue over the region.

With the contagion effect in the forefront of the minds of the international financial community, commodity currencies like the AUD continue to suffer.

The effects of a little bit of good news such as the possibility of the IMF preparing a debt package for Italy, translates into a higher AUD. Although this would take a while to put together, this quick move is indicative of the skittishness of the financial markets.

Australia has its own problems as well, with the Treasurer Wayne Swan projecting receipts from the capital gains tax over the next 4 years will be AUD7bn less than projected in May, due to a 15% decline in the share market over the last 6 months. Further spending cuts are expected to be announced shortly.

This week we see new home sales data (Tuesday) as well as private capital expenditure, building approvals and private sector credit data on Wednesday.

Chinese PMI data, inflationary pressures and monetary policy will be scrutinised after the disappointing flash data released last week. We see the AUD steady in the 0.9800's today.

Majors: Although European equity indices finished higher on Friday the firmer tone did not carry through to the US markets, which recorded small losses, as volumes were very light after the Thanksgiving holiday. Figures from Black Friday (whose moniker comes from retailers who see this as the biggest shopping day of the year in the US and a day in which they all make profits) were encouraging with sales up 6.6% and foot traffic up 5.1% yoy.

Later this week, we will see ISM manufacturing data and nonfarm payroll information, which are predicted to increase by 120k. This slightly optimistic tone was drowned out by further downgrades to sovereign debt in Belgium (one notch to AA) and Hungary (which was cut to junk status).

Italian government bonds continue to be shunned by investors with 6 month yields almost doubling over the past month to 6.5% pa last week. Europe will continue to drive the financial markets direction and sentiment (and headlines) in coming weeks.

Economic Calendar
28 NOV JP Small Business Confidence NOV
EC OECD November Economic Outlook
US Dallas Federal Manufacturing Activity NOV
GE Retail Sales NOV