Australia: The AUD has rallied as European leaders scramble to structure a plan at tonight’s meeting of the 17 EU Finance Ministers where there are reports that they will be discussing a greater role for the ECB and the IMF.

This particularly refers to whether the ECB should channel funds to troubled Euro countries through the IMF. Here, the Federal Government
yesterday published its Mid-Year Economic and Fiscal Outlook (MYEFO) in which it projected a surplus of A$1.5bn for 2012/13, which was less than its May budget forecast for a surplus of A$3.5bn. In all theory, there were few surprises. Net debt is expected to peak at 8.9% of GDP in 2011/12 which compares to the average net debt in G7 economies which is forecast to rise to 80% by the end of 2011. Nearly all are questioning the Government’s strategy (wisdom) to return a surplus next year given the ever present and real mounting global risks and is at policy odds with the likely relaxing of interest rate settings by the RBA in coming months.

Today, Q3 private capital expenditure data is released ahead of Q3 GDP next week. A busy night awaits, with the US releasing ADP Employment, pending home sales, Chicago PMI and the Fed’s Beige Book. In Europe, CPI and unemployment data are out, as well as news from the Finance Ministers. We see AUD hovering at Parity, but watch out for more volatility, either way…

Majors: The Eurozone Finance Ministers meeting is head of the agenda today. The meeting has already approved EUR5.8bn in funding for Greece while the Dutch Minister said the EFSF is falling short and needs to see a “greater role for the IMF”.

Financial markets are definitely hoping for good structural decisions to be made, and the solid auction of Italian bonds added to the positive sentiment. Good news out of the US with the American consumer, who represents about 70% of that country’s GDP, looking more confident. A much larger than expected rebound in US consumer confidence to 56.0 (market 44.9 and last 40.9) certainly helped market sentiment.

On the back of this, US Federal Reserve Vice Chair Janet Yellen stated “the scope remains to provide additional accommodation through enhanced guidance on the path of the federal funds rate or through additional purchases of longer-term financial assets”. They seem hell bent on their strategy to keep monetary settings unchanged for some time yet. What interesting times we live in.