The Australian sharemarket followed broad weakness among risk assets while the US dollar rallied on safe-haven buying on fears the tough stance of Greece's anti- austerity political parties would force an eventual debt default and market disruptive exit from the eurozone.
The Australian dollar crashed through long-term trend line support and the S&P/ASX 200 index fell 39.2 points, or 0.91 per cent to 4275.1 points, with yesterday's Federal Budget offering little comfort to investors.
Sentiment was give a late boost when Germany's trade balance of .4 billion beat forecasts for .3 billion.
The greenback's strength came in spite of renewed predictions of US Federal Reserve quantitative easing, or money printing, as early as next month by Goldman Sach's chief economist Jan Hatzius and Pimco joint chief executive Bill Gross.
The Australian dollar fell 1.3¢ to $US1.0060, falling below the support around $US1.0150 which marked the uptrend in place since the US62.50¢ low point reach in 2008. It also lost 0.6¢ to 77.55 euro cents.
Australian government 10-year bond yields dropped 5.3 points to a record low of 3.3363 per cent, aided by government claims that the Federal budget paved the way for further monetary easing.
Gold's safe have status was also dealt a blow as the precious metal broke through key support at the march low of $US1615 an ounce, falling $US38 to an Asian session low of $US1588 an ounce. Copper slipped 0.3 per cent to $US8072 a tonne.
Eurozone tensions ratcheted up overnight after the leader of Greece's party, who has the mandate to form a government, insisted the existing government should send a letter to the European Union revoking pledges to austerity measures.
Japan's Nikkei index was off 1.4 per cent and the Shanghai composite index was down 1.3 per cent at the close of the ASX.
Westpac interest rate strategist Russell Jones said that despite the observation that China continued to expand at a pace to create another Greek-sized economy every 11 weeks, and a Spanish-sized one every 15-weeks, "today's intricately interconnected financial markets do not allow any economy the luxury of 'splendid isolation'".
He said the main risk was if Greece left the euro would be that the unitary currency could merely be perceived as another fixed, but adjustable (and leavable) pegged exchange rate system along the lines of Bretton Woods or the old European exchange rate mechanism.
"In such an environment, sovereign bond yields would necessarily reflect perceived devaluation and exit premia and these interest rates are likely to be unsustainably high for many members," he said.Other analysts caution that the ripple effect of a Greek exit would be the flight of bank deposits from countries like Portugal, Spain, and Italy that would trigger bank collapses throughout the region.
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