Australia: The Australian Dollar once again retreated during Friday evening's trade as concerns about the global economic recovery emerged and equity markets headed down in Europe and the US.

How the equity markets so goes the Australian dollar.

After trading just above 0.8800 on Friday the AUD tumbled to below 0.8700 and has opened this morning in the mid 0.8600's.

The catalysts for the fall in equity markets where the DJ Euro Stoxx 50 fell 2.1%, Germany's DAX 1.8% and FTSE by 1.1% was the release of the July consumer confidence survey in the US and also poorer Q2 results than expected from Bank of America and Citicorp.

In the US, the University of Michigan's survey revealed that the index fell to 66.5 from the previous level of 76, which was the largest decline since August, 2009.

With US consumers feeling less confident about their individual circumstances for the next 12 months which may result in lower consumer spending this put a dampener on all equity markets.

The Dow took a tumble by 2.5% to 10,098, the S&P 500 was down by an even larger 2.9% to 1,065 and NASDAQ fell over 3% to 2,179.

All major commodity prices were off with copper off 2.9%, gold down to US$1,193 and ounce and oil fell to US$76 a barrel.

The likely short-term direction of the AUD will again be influenced by equity markets with another huge week of earnings releases by over 125 companies that compose the US S&P500 index.

Investors will likely be more cautious until the results of the Australian federal election called by Prime Minister Julia Gillard for August 21 are known but, as always, the AUD will be more affected by offshore factors.

This week RBA Governor Glenn Stevens speaks on Tuesday when the policy minutes are also released.

Majors: The EURUSD retreated from its recent high of over 1.3000 after equity markets began their tumble.

All the AUD cross rates fell lower as a result. We would expect the retreat to continue if the Q2 earnings releases in the US continue to be below expectations. Later this week the European bank stress tests are to be released.

Chinese Premier Wen spoke on the weekend saying that China needed to increase domestic demand while stabilizing overseas demand in order to achieve fast economic growth and ensure employment since the global economy was recovering at a slow pace. We expect there is more volatile trading ahead in all financial markets.

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